So I wonder what could explain the extra lag this cycle? Could the pipeline have gotten that much longer simply because of labor shortages? That doesn't see likely.
Of course, the REITS can still rally. I own SRS, but have no faith, because all sectors will ignore any bad news. Gaza strip mall REITS will prolly rally on Monday.
In Q3-2008 fall in residential fixed investments contributed -0.7% to the QoQ GDP growth rate, while continued investment in non-residential structures contributed +0.3% (both of these GDP components are comparable at the absolute level)
I do not know if the residential fixed investments will continue to fall (they've fallen enough), but CRE is likely to become a noticeable contributor to GDP contraction in 2009.
Did they get the bank for the 1.3b in cash? Supposedly worth 13b? Yet it had 30b in assets a year ago...
A 2007 quote
Grove Nichols, the executive vice president of corporate communications for IndyMac, said there was a key difference between his company and the mortgage lenders that are suffering on Wall Street. IndyMac isnt a mortgage real estate investment trust -- it's a savings and loan association with $30 billion in assets, and therefore doesnt suffer from the same vulnerabilities as mortgage REITs
And
Jan. 3 (Bloomberg) -- Private-equity investors led by Steven Mnuchin, a former Goldman Sachs Group Inc. executive, agreed to buy IndyMac Bank from the Federal Deposit Insurance Corp. and inject $1.3 billion in cash, a rare purchase of a failed financial institution by non-bank buyers.
snip
I am not impressed with the amount of capital being put in, Bert Ely, chief executive officer of Ely & Co. Inc., a financial institutions consultant in Alexandria, Virginia, said in an interview after the announcement. Why didnt any bank buy it? IndyMac doesnt strike me as a very viable bank.
The investor group and the FDIC signed a letter of intent for the transaction, which the agency said in a fact sheet was valued at about $13.9 billion. The investors will inject about $1.3 billion in cash into the new company when the deal closes, later this month or in early February, the agency said.
"So I wonder what could explain the extra lag this cycle?"
Denial. Hardheadedness. The same stuff you see on all the market talk shows, the stuff that drives the stock prices, the denial by government of the problem until it took a huge piece out of their backsides.
I never saw the same thing in other recessions.
So, if I read this right then now is the best time to get back into REITs?? I think their timing is different from CR...
For the first quarter of 2008 REIT shares, as measured by Morgan Stanley (nyse: MS - news - people )'s RMZ index, achieved a return of 1%. That contrasts with a loss for the broad stock market of between 7% and 14%, depending on which index you use. At a REIT conference in early April, Martin Cohen, the co-chief executive of Cohen & Steers (nyse: CNS - news - people ), the largest REIT mutual fund manager, noted that historically the trusts have run in cycles of about eight years. You get seven fat years followed by one lean year. We just finished a lean year. At the same conference Citigroup (nyse: C - news - people ) analyst Jonathan Litt, who was about to depart and launch his own fund management group, pointed out that the five REIT bear markets since 1972 have lasted 18 months on average, with price drops of about 25%. The current bear market, he said, is now 14 months old, and REITs are 24% off their peaks. The pattern would seem to suggest that this is a great time to get back into them.
sm_landlord, Comrade Byzantine_Ruins - it seemed that lending was very loose for CRE for most of 2007 - much longer than I originally expected. Apparently lenders believed the problems were "contained to subprime". Since CRE projects take some time to build, we are now seeing those projects being completed.
I felt lenders would tighten sooner because the historical pattern is well known (I've been writing about it since I started this blog!)
Nemo keeps joking that I'm just starting to cover CRE - but I've actually writing about how the CRE bust would follow residential for a few years. I deleted Nemo's comment because some people might not realize he is joking.
I have coworkers in NYK who were getting all stressed about a new rental property back in 2007, and I was suggesting that since they would be long term tenants, surely they could grab an offer by the short and curlies and really do the biz, crank it down by time/volume/reliability?
NYK Office : Oh no, no, that would damage our reputation.
Me: But not your reputation for being easy marks and saps?
NYK Office: You cannot apply your standards here, DC is sui generis, NYK has its own dynamics, it's different up here. We need to pay this price in this market to get what we want.
I guess, looking at the index charts, you'd look first at S&P resistance at about 1000. Interesting that just a little over 1000 is a 38.2% retrace between May and November.
Past that, there's a big gap around S&P 1090, 1100. 1090 is about a 50% retrace.
Failure there would give you a target of about 600 on the S&P.
Mike in Long Island, the severity of the recession is hard to call. I don't think it will be a depression (usually defined as 10% decline in GDP), but it definitely will not be mild.
I originally projected unemployment wouldn't reach 8% - but I think I'd increase the odds that the unemployment rate will go higher than that projection. I'm trying to put together another estimate.
I think the scariest thing is the rapid slowdown in international trade (and U.S. exports). That is happening faster than I expected.
Of course I expected the CRE slump. And there is some good news too (falling gasoline prices, a major stimulus package, and fewer layoffs coming in residential construction - since residential has already been crushed). I'll have more later ...
I calculated December 2008 sales for San Fernando Valley today. Short sales and foreclosures were almost 70% of closed sales. This matched a similiar trend for nearby Ventura county, 70% were distressed properties.
"Anybody get the feeling that the old models are not working for forecasting?"
The feeling I have, nova, is that lots of industries (retail, hotels, etc.) thought the heady days of the bubble were the new reality. They simply failed to account that a large part of the GNP and of consumer spending was simply borrowed from the future and could not continue. There are still a lot of people who think we will 'return' somehow.
Calculated Risk writes: fewer layoffs coming in residential construction - since residential has already been crushed.
It is only good news if those people laid off from residential construction found new jobs. If they remain unemployed, then it is scarcely a good news, just lack of new bad news.
Calculated Risk writes:
"sm_landlord, Comrade Byzantine_Ruins - it seemed that lending was very loose for CRE for most of 2007 - much longer than I originally expected. Apparently lenders believed the problems were "contained to subprime". Since CRE projects take some time to build, we are now seeing those projects being completed."
CR, I hear you, but I'm stunned; gobsmacked if you will. If the lenders actually believed that, they must have been channeling S&L execs from the 1980s.
If I accept your explanation, that leads to the conclusion that CRE lending decisions were being made by people less than half my age (and illiterate ones at that), and I simply do not want to believe that.
If so, where were the adults? This is not comforting...
"There are still a lot of people who think we will 'return' somehow."
--wally
We'll return all right: to the long-term trend, and beyond!
I have previously predicted that we would return to inflation-adjusted 1997 pricing on RE in general. Now I'm thinking that I was excessively optimistic.
Residential investment should be the first thing to bounce back since it got hammered first and very hard. First signs of recovery: Sales volume on existing homes bottoms out and starts to come back up. I'm thinking March-May 2009.
emo's comment got the axe from the HMFIC, interesting.
no more jokes kids, or maybe just one, its an oldie but a goodie:
DECEMBER 31--Following his arrest earlier today for drunk driving, Charles Barkley told Arizona cops that he ran a stop sign because he was in a hurry to pick up a girl who had "given him a 'blow job' one week earlier," which the former NBA star described as "the best one he had ever had in his life." According to a Gilbert Police Department report...
CRE is still building in Chicago. In the 10 block walk from the train station to my office there are 6 commercial skyscrapers going up and the Trump Tower. A couple are condo/hotels. Others are office buildings. Every time I walk past them I think to myself do the owner's of these projects know they are already bankrupt? I suspect they do. They keep building them anyway once the foundation pilings are poured.
smoking_crater writes:
""Charles Barkley told Arizona cops that he ran a stop sign because he was in a hurry to pick up a girl who had "given him a 'blow job' one week earlier," which the former NBA star described as "the best one he had ever had in his life.""
Doc at the Radar Station writes:
Residential investment should be the first thing to bounce back since it got hammered first and very hard. First signs of recovery: Sales volume on existing homes bottoms out and starts to come back up. I'm thinking March-May 2009.
And this is regardless of the unemployment situation?
. sm_landlord(Unrated) writes: \tCalculated Risk writes: "sm_landlord, Comrade Byzantine_Ruins - it seemed that lending was very loose for CRE for most of 2007 - much longer than I originally expected. Apparently lenders believed the problems were "contained to subprime". Since CRE projects take some time to build, we are now seeing those projects being completed."
CR, I hear you, but I'm stunned; gobsmacked if you will. If the lenders actually believed that, they must have been channeling S&L execs from the 1980s. sm_landlord | 01.03.09 - 9:54 pm | #
Hell, Bernanke believed it - or at least said he did - why not the CRE lenders?
"Residential is still building, including mixed use, where I live."
I'm still busy- and I'm an architect. The guys who run the firm see a solid workload into the forseeable future. They don't really want my opinion and I don't give it... I just go to work and keep cashing the checks. I hope it keeps going and going, but we seem to be just about the only ones in town who are now in this position.
Doc at the Radar Station writes:
"Residential investment should be the first thing to bounce back since it got hammered first and very hard. First signs of recovery: Sales volume on existing homes bottoms out and starts to come back up. I'm thinking March-May 2009."
You could argue that it has already bottomed in some areas if you count foreclosures and distressed sales.
I see another bottom coming however. High-end stuff is still mostly dead, but not bottomed. The good stuff needs another "silent spring" in order for the prices to start adjusting.
If I was a lender and the future looked dim, I'd lend to a CRE developer longer into the downturn then I would a home bldr. Apt. bldngs, office complexes, strip malls would be attractive to take back after a small haircut.
I have previously predicted that we would return to inflation-adjusted 1997 pricing on RE in general. Now I'm thinking that I was excessively optimistic. \t sm_landlord | \t \t \t \t01.03.09 - 10:03 pm | I think the RRE will go back to the price/income ratio or price/rent ratio (whichever is lower) as of 2000 - 2001 - (before the funny money era kicked off by the Greenspan FED and maintained by the Banksters). But I thiink that by the time that happens, rent and income will have dropped too, because of the Greater Depression.
Really? Say, if the unemployment does go above 10% and those still employed being quite concerned about their jobs, who will be buying those homes?
MrM
Residential investments lead consumer recessions in the contraction and the recovery historically. There is a whopping amount of cash the Fed is creating through buying GSE debt. It's coming.
SIL works for WAMU in CRE.He was the only one at work yesterday in a 16 person office(everybody else on vacation).I don't know how many different phone lines,but he said he would have answered any of them and that there were ZERO calls for the entire day.He has not closed a deal in weeks and this is a man who with his partner set a company record of 165 million in just the month of May.
If leaking thru roof check chimney, gutters or facia. If ground level, dig up all vegetation around foundation, dig down, back fill with gravel, slope away from foundation
If so, where were the adults? This is not comforting...
The question may be "are we the children?"
"A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."
Shiller index has Miami 38% off as of October, according to post 2 or 3 threads down. Assuming 1% a month declines, it will bottom--if we are lucky at half off in Oct 2009, and then just head east for a while. If we are not lucky it will continue dropping 1% a month for another 6 months or so.
The Fed/Treasury have yet to implement a single program that actually has positive results that can be pointed to and documented with numbers (unless preventing insolvency of financial institutions from being public knowledge counts as 'positive').
And Evans from the Chicago Fed (in the article above by Citizen AllenM | 01.03.09 - 10:15 pm) clearly says that the Fed has started by-passing the banks with direct programs, but that won't be enough - and Obama will need to do massive fiscal stimulus.
So why does anyone think that we are anywhere near to 'turning the corner'?
There seems no hard evidence of this yet.
"Any hope that the Middle East debate will stay in the previous thread?"
Oh please, give everybody a gun and let then settle it themselves..
Citizen AllenM - If everybody moves in a herd the collective result is inevitable.
"If it were not constrained by zero, those models would want to push it below zero, but that's not possible," Evans told reporters after a panel at the American Economic Association's meeting in San Francisco.
Yes it is - deflation by its very definition is less than zero.
An admission that deflation not at the door but already in the house.
Doc at the Radar Station writes:
Residential investments lead consumer recessions in the contraction and the recovery historically. There is a whopping amount of cash the Fed is creating through buying GSE debt. It's coming.
Well, eventually everything recovers.
I can see this cash going into refi, but not in new purchases. With the consumer confidence at historic lows and rapidly rising unemployment, I remain skeptical of any near-term recovery in residential real estate sales volume.
Already have done that. Still leaking. The house has decks that are unprotected by the roofline.
I'm considering modifying the roof structure to increase coverage. But I would need help from an architect to make that sort of structural modification and remain with code and covenants.
Oddly enough, if you have to invest, I would recommend that you think about equities, preferably equities outside of the US, but here too. Bonds are going to undergo a tremendous slaughter as inflation becomes apparent.
The next big problem is the removal of stimulus will provoke huge drops that ensure yet another round of stimulus to keep this economy staggering forward.
This is the death of Mish and Jas' deflationary spiral. There will be no deflation as money freshly printed starts ripping through this economy.
This will be another fascinating year- One Trillion in STIMULUS!!!
Who is going to hold onto a dollar five seconds longer than necessary?
And ref last thread or 2, my mom's neighborhood is well kept with a variety of people of all ages and races and my mom is not poor. If the police aren't helping her, then who are they helping? Answer--they were really uncooperative over the phone until I called back so many times, they realized they wouldn't get rid of me--they are helping only on actual murders (I think this was attempted murder as mom described it) and obviously rich people. BFD.
"The Fed isn't trying to revive the stock market nor is it trying to avert a recession. Those that continue to think in these terms will continue to misunderstand the market for the next two years.
"preferably equities outside of the US, but here too. Bonds are going to undergo a tremendous slaughter"
Citizen AllenM
I might agree but now disagree about the timing. The damage is already done. Time to pick the bones. I'm just learning paper stuff but already way ahead on the bottom line. Suggest LQD, HIO. But if ur brave go into specific lines - GMAC debt rose 46% in two days...a great time!
Just curious what you think will happen with mortgage interest rates in the face of inflation. Do you believe that the Fed will keep the mortgage rates well below inflation as long as needed to clear inventory?
Starting in 98 I started buying single family rental property with 10% down thru Va foreclosure .I stop in 2004 when you could not rent the house to cover the mortgage cost .Based on rental cost to house prices in Va beach area ( based on my 2 cent formula ) We need to drop 30% more in price before I get back in the housing market.Today I stopped by a house I bought in 2002 for 135000k 4 bed 2 1/2 bath . Today I see the same model listed for $259000 .I'm a buyer again on that house at $165000 ish. IMHO housing should bottom late in 2010 .
I've seen this cre stuff happen at least 2 or 3 or maybe 4 times in South Fla and I am absolutely convinced that the vast majority of so called bankers have not got the slightest idea what they are doing.
A year and a half ago, I said, why don't the adults let the projects get to a good point and then shut down the damned tower construction. They don't even have to give the developers a bad credit rating, or sue on personal guarantees or anything. Anything would be better than throwing money down this black hole.
The answer is that there is no upside in admitting you've made a mistake, and when not playing with your own money, there is an upside to not caring. Gosh, those imbeciles who couldn't see what is so patently obvious just continued to get paid for another year and a half.
Maybe bankers who make these decisions should be forced to put a couple thou of their own money in these projects. Bet even that tiny amount would be enough to stop some foolishness.
Mortgage rates?
Who cares?
In a couple of years you will no longer be able to get a mortgage.
At least in dollars.
I am continue to think that this is the beginning of the end of the dollar as reserve currency- a position that I have consistently advocated as the deflationary mafia has persistently stated the Fed would allow total deflation. They won't.
I have previously predicted that we would return to inflation-adjusted 1997 pricing on RE in general. Now I'm thinking that I was excessively optimistic. sm_landlord | 01.03.09 - 10:03 pm | #
Yeah, I've seen those charts. You can't fight the Fed. Remember the first rule. They are going to do everything possible to clear inventory. If it means 6-8% inflation, nationalizing banks, etc, etc., it's gonna happen!
Lookit the option arms. Sheesh. Am familiar with the chart, but gosh, put it out of my mind, maybe because I didn't close any; the worst is yet to come.
The problem with death calls for the dollar is that the anfglo world and ECB will align if necessary to prevent too much of a gutting of the old Atlantic alliance. no doubt stocks go up as the rush of money looks for its next stop. Likley a blow off the top in the equities> will be a tell to see how the dollar responds as equities rise? Also what happens to the appetite for US gov;t debt as the auctions get rolling? Something has to give it is juts a matter of time. My guess is the Fed and the Obama folk will eventually conclude the dollar isn't worth saving. The trick for BErnanke and Obama is to keep saying they support the dollar as it slowly belleds away. Win the battle before it is fought. Chian and JApan hare onto it already. When the bomb comes it is going to be epic.
Doc at the Radar Station writes: You can't fight the Fed.
Even the Fed cannot force people to borrow and buy houses. What do you think will be the consumer confidence and the unemployment with 6-8% inflation?
Out here in Cali, the rich are getting their police coverage cut. Only one patrol car for all of Pacific Palisades. Only 275 police for all of West Los Angeles.
Santa Monica hasn't cut back yet. We still have something like 260 sworn officers for the roughly 15 square miles of the city. But I don't know how long that will last.
Back in the early 1990s, this area was covered by what seemed like hundreds of private police staff, and I expect that to happen again as time passes. In the 80s and early 90s, it seemed like there was a private security car on every other street corner. More recently, SM has very responsive police presence; they even show up and thoroughly document burglaries. Not much on rounding up the suspects, however.
LL, I'm sorry about your mom. Short of a protected enclave, I don't think you'll see much better protection. But the cops may catch the perp eventually, probably after some other offense.
I'm really worried about my mom. She is in an unprotected (and unprotectable) area, but does not want to relocate. About all I can do at this point is to try to make her a less attractive target, and add a little security with alarms and such.
You can't forced scared unemployed people to spend money .
True. But, there are a lot more employed people than unemployed people (even during the depression 3:1), who have saved up a lot of cash that isn't earning them anything and that inflation will eat away IF THEY don't get into a HOUSE NOW at a fixed below inflation rate mortgage...
inflation is going to be max destructive this time as the fed seeks to inflate while holding rates low and the wage arbitrage continues to bite. This collapse is going to be epic.
Regarding option arm resets, it could go a couple of ways. I've heard it argued that because of declining rates, the resets might not be as problematic as a quick glance at the charts would indicate.
On the flip side, if unemployment continues to climb, it doesn't make much difference if the reset drops the rate to 2%; if the mortgage holder is unemployed, he's toast.
IMHO, one big difference this time around is that the more expensive markets will get less so relative to other markets. The disconnect between incomes and prices was primarily due to accumulated equity used for trading up, and that's being wiped out.
These new holes you see dug for new construction? This money was in the pipeline long ago. This is big money. Maybe in the 'new economy' it will be money lost, but they will push it to the last dollar. And just perhaps it will pull us through, at least as far as big-time construction is concerned. Time will tell.
I'm really worried about my mom. She is in an unprotected (and unprotectable) area, but does not want to relocate. About all I can do at this point is to try to make her a less attractive target, and add a little security with alarms and such. sm_landlord | 01.03.09 - 10:54 pm | #
Would she consider a nice big dog? Beats almost any home security system hands down.
Resets should be worse because of house prices have drop . Unless banks are willing to do exotic loans again(Ninja ect) a lot of theses resets will default (a lot will walk away). Most people who bought balloons because they did not ever make enough to afford the house with a normal fix note. If you think CEO's know what's going on ?Why would Bob Toll want to sell 3 million shares within the next 12 months if housing was near bottom? As far as fighting the Fed they have lost control unless you think they did this on purpose to kill the dollar?
Can someone explain how this "inflation" is going to do anything for average joe? One either has to assume it reinflates thier houses and the home equity tap opens - not happening (Chase requires 60% LTV in some areas) or wages are going to spiral up - not happening. So inflation will come and if anything it will spiral into commodities and then the food and will end up contirbuting to a horrid devaluation. The devaluation is coming whether it is in the dollar or simply the things you need start to rise in cost. Anyone holding out hope that the "good" inflation of old is coming back is totally delusional. Stocks may go up for a bit but they will eventually collapse as fundamentals chase them dow
"I'm really worried about my mom. She is in an unprotected (and unprotectable) area, but does not want to relocate."
i got my mom a dog for just that reason...a 70lb shepherd mix. Not that alarms and such aren't useful, but a good sized dog with a protective instinct and a strong bark is a deterrent, at least.
And of course, there's companionship.
Comrade Bear (tj & the bear) - I got two Roties three years ago. Very nice and friendly...However a "Gas Meter Repair Man" showed up one day to service the gas meters. He went around to the back yard and tried to look busy. A few moments later, I went outside with Bernie and Betsy to see his progress...the dogs were not amuzed to see a person in thier yard. They were well behaved but the "Repair" person visibly wet his pants.
I called the gas company - there were no repairs scheduled and never heard of this repair person...
Liz - sorry to hear about your mother's case being pushed to the side by the Baltimore Police.
Maybe sometime in the future, when you are far enough removed from your current situation to be interested ... pick up The Wire on DVD from the video store. Best television show ever created ... and you'll get to a pretty riveting view of the Baltimore Police and the City itself.
I'm thinking an alarm with a panic button. Unfortunately she would not accept a big dog. I wasn't worried about a mugging either until the neighbor's house got cleaned out during daylight hours. Unfortunately the neighborhood cannot be be gated, they have already tried that and the city vetoed it. I guess the next step is to get the neighbors to pony up for private police.
inflation has to impact interest rates it is a mathmatical certaintly As rates go up prices compress. Inflation is not the anwser but it is the only thing they know. And those wishing for it are let me guess leveraged to the hilt
btw - all three of us have had 'buot 100 hours of trianing time...Betsy can do rolls on the driveway and Bernie will jump over her...very good dogs! On a split second they will fall in beside me and do what I ask.
That other cop show, umm, don't remember the name was set in Balto. They wanted to use my mom's house as a set, as I recall. She said no, too much trouble.
I repeat, this is not a "bad area". There is new housing nearby. A lot of people spent money redoing the facades in recent years and doing stuff like putting wood patios on the roof, and a few even put part of a 3rd floor on.
Good for you! I doubt I'll ever be without a shepherd in the house (and mine's a 100lb girl).
Every time I hear of a single woman waking up to find some strange guy in her bedroom I think "not if she had a big dog".
Same goes for those "armed security" companies; by the time they get there the damage has already been done. OTOH, a dog will often warn before the break-in, and if the perp is still stupid enough to continue he would have to go through that dog to get at anything or anyone.
Someone posted a story recently about two pit bulls that killed a visiting grandfather, who happened to go out into the backyard to have a smoke. Who says smoking doesn't kill.
everyone keeps saying inflation. I have yet to see anywhere an explanation of how inflation helpos this situation? Please someone lay it out how inflation helps anything - inlcude impact on wages, rates, expectations please - what the gov is going to unleash inflation and then what house prices are going to skyrocket and the banks already bankrupt are goign to buy into it hook line and sinker. THis as the gov rites down mortgage principle.
Doc at the Radar Station writes:
Can someone explain how this "inflation" is going to do anything for average joe?
Watch for possible gasoline rationing to put an upside constraint on consumer expenditures for imported necessities.
Doc at the Radar Station | 01.03.09 - 11:09 pm | # I don't put anything passed this government. Except rationing gas will make everyone spend even less. Most people will be scared to spend . I just hope they don't try and corral us with bird flu. Then gas us....
Extending on that thought... * First leg down in housing due to bubble burst -- still in progress * Second leg down due to unemployment -- just getting underway * Third leg down due to skyrocketing long rates -- ???
Doc, the amounts of money are simply stupendous to subsidize the amount necessary. they could subsidize now and keep people in their homes by paying people's delinquent mtg payments. . . Not happening.
The chain reaction to egt inflation to work would be ass follows: fed prints money, banks lebnd, people take money and deploy into more shopping malls and exceess capacity (stranded) [this as rates fall and likley materials begin to rise] excess capacity hires people who get paid nominal to stagnant wages but the amount of money gets forced into equity or house or other bubble. banks comply and begin to lend on overinflated assets. J6P pulls money out becasue bank is so stupid they will do exactly what got us here. Fed finds itself contemplating printing more money but this time they have chaoin gangs digging holes and another following to fill them in. Diet now consits of rice and puddle water.
The only thing inflation accomplishes is to piss off China and Japan. MAke no mistake the USG is going to default and they will tank the dollar before that as it looks better and can be blamced on fundamentals.
London Banker has it right only invest in responsible countries. Germany looks the best of the worst at the moment,
S, planned inflation is designed to lower the real value of debts. If we had a large inflation, it would improve the lot of people who borrowed, and worsen the lot of people who saved. Since the people who borrowed a lot (mostly to buy assets and then reap profits from selling them for more than the debt+interest) are now complaining the loudest, the inflation is for their benefit.
Most dogs are strictly for companionship, but not shepherds and a few others. Shepherds instinctively know they have jobs, and are preferred the world over for those jobs.
S, I made my prior post before I saw your last comments about inflation. I agree wholeheartedly about investing in the currency of a country that hates inflation.
Germany is one such country, but its currency is shared with France and Italy and Britain and other countries with a miserable inflation history. My personal favorite is the Yen. It has gone up a lot since I moved a lot of my own money into it, so buying more is not quite such a slam-dunk now, but it is an interesting inflation hedge.
rattioning will lead to serious unrest. That is why the US War college just published a paper on using active duty troops to qwell violence after US got rights to base troops here.
Look at the US warfighting strategy to see what their gameplan will be. IT will be a bank holifday combined with a internet holiday. Command and control.
Got to love the economists like that fool at Economist View who everytimg an ammo clip is expensed claim to have an unlimted supply. Soon Bernanke will be spitting at the market
"Not if they are imported."
--Doc at the Radar Station
That is frankly ridiculous. If necessities are imported and scarce, they become even more expensive, because imports are the first thing to stop. And how many imports are necessities?
I'm talking about a scenario where we restrict consumption and demand for imported oil by rationing gasoline. Reducing demand for imported oil isn't going to make oil more expensive.
Ooops. I thought you meant mortgage rates. Doc at the Radar Station | 01.03.09 - 11:20 pm | #
I did. When people flee Treasuries then there'll be no subsidy, just loads of inflation and risk. Mortgage rates will skyrocket along with everything else.
if you have a lot of debt in your house or on your credit xard and most americans arn;t that invested in the stock market, the only inflation that will save them is wage or house inflation, coirrect. Neither are happening. So again I ask how is printing money going to help this problem. The short anwser is it does not. I understand the simplistic arguments that inflation reduces real favlue of debt. But it only does so if you see that reflected in interest rates (higher return which exacerbates the pricing doewnsife of houses) or wage increases. The Fed is spinning a deathly cocktail to help itself not you or any householder.
Liz, if inflation and low interest rates were to take hold as the Fed hopes and plans, then it would change the game. Saving and holding money would then be 'taxed', whereas borrowing and buying assets would be rewarded, especially if loans are widely available with little or no money down, as the Fed will arrange for.
Is it nuts? I think so, but who am I compared to Mr Bernanke and Mr Krugman and others?
imports can get more expensive by just tanking the dollar. Argues for being long oil and metal. Look at what led the rally on Friday - Day 1 people bought energy and metal. The Fed is going to decapitiate itself.
Saving and holding money would then be 'taxed', whereas borrowing and buying assets would be rewarded, especially if loans are widely available with little or no money down patientrenter | 01.03.09 - 11:32 pm | #
Been there, done that. Savings rate went negative, toxic lending flourished. Look where it got us.
Totally agree. The Fed and all its Keynesian lackeys will find themselves miffed when printing money finds its way into something that will create a totally new problem.
"I'm talking about a scenario where we restrict consumption and demand for imported oil by rationing gasoline. Reducing demand for imported oil isn't going to make oil more expensive."
---Doc at the Radar Station
Different discussion. But oil doesn't get get cheaper because import demand is reduced. It actually gets more expensive, because cheap oil is not produced in this country. You were talking about the U.S., right?
Reducing demand for imported oil make oil more expensive, because domestic oil is more expensive than imported oil. Otherwise there would be no imported oil.
There's more reason for imported oil than just that. Dwindling U.S. reserves also has something to do with it. We peaked in the 70's, and have been on the downslope ever since.
We will get a greatly devalued dollar one way or another, sooner or later, faster or slower. That will mean great inflation in imported goods, especially oil, which is a necessity. Rationing isn't a given, but it would prevent the higher gasoline prices from asphyxiating personal savings and domestic investment.
it wssn;t the 500K property at 5% that ignited the bubble it was the 500K 5% property doubling to $1M and the HE extraction. That is NOT happening again. Just not. SO sure you get a "cheap" asset until inflation kicks in and that rate in 5 years goes back to 8%. Then what. Your capital loss will be epic for the next buyer to have the same payment. Do the math. Money for nothing gets you nothing.
Doc, so long as speculation remains in play, there's no guarantee, even if you ration. The price would need to be fixed and speculation would have to be controlled, or prohibited.
That depends on there being something to "flee" to that has lesser risk. What might that be? Doc at the Radar Station | 01.03.09 - 11:35 pm | #
Hard assets, foreign repatriation; could be simply herd mentality getting out the door.
It's taken $2B a day in borrowing just to sustain our deficits in good times, and now we're talking about financing well over a trillion dollar deficit next year? That means more borrowing, not less, and that with our foreign financiers not having loads of export money to recycle back our direction. Supply can easily overwhelm demand and the floodgates just blow the hell off.
I'd rather not touch the inflation issue since real rates can't be determined as there is no commonly accepted "base" year. Anyway, one of my oft cited pet peeves.
However, I will say that broad based increases in prices generally affect non-durables first and move their way up the food chain to durables.
The most durable assets are CRE and we've seen the end there. Now, we'll drop back down the ladder to soft commodities and utilties. This "inflation" will be manifested by increasing prices, lower per unit quantities, lower quality/ unit or some mix therein based on the market segment and turnover.
If you can accept that as a reasonable case for historical trends, a mcmansion that sold for $500k two years ago won't see that price again for 10-12 years, at least.
Why? Commodities and utilites will keep eating up the incremental increases in money supply and they are already the base producers of velocity (turnover).
But, if you're afraid of being "priced out forever" of a home due to some type of durable good inflation, by all means, swing for the fences.
However, if you want to buy a strip mall or power center at 50c/$ (replacement cost), restructure the existing loan, and lose money on negative carry for 3 years...you might be onto something.
he Federal Reserve has embarked on a campaign of unsupervised industrial policy to end the country's financial crisis, a move that could undermine its independence, a former top U.S. official said on Saturday.
You and I are in agreement that inflating asset bubbles is not healthy or sustainable in the long run.
What I am saying is that the govt has the power and the will to re-inflate. I gave as an example the provision of no-money-down non-recourse loans. Do you disagree?
(From the borrower's POV, borrowing like this is really just being given a free call option on the asset being purchased with the loan, so any future capital losses are no concern of the borrower - he just walks if that happens, and gives the key to the FDIC or the relevant govt agency that provided the guarantees.)
If I can get a non-money-down non-recourse loan to buy a $500,000 property, and pay just 5% fixed interest, then why wouldn't I give it a spin? patientrenter | 01.03.09 - 11:39 pm | #
Not me, because I know that's really a $250K property and it's not worth the credit hit when it's inevitably time to walk away.
Regardless, isn't that what got us here? I think everyone that wanted to try that already did.
"There's more reason for imported oil than just that. Dwindling U.S. reserves also has something to do with it. We peaked in the 70's, and have been on the downslope ever since."
--Morocco Bama
Yes, and that's why it's pointless to have a discussion about reducing imports.
Any imposed reduction in oil consumption will result in increased prices. Prices will rise to balance supply vs demand. Supply will include imports. Demand will support prices, because people will buy what they need to continue commerce. You can look at Europe to see this.
People and companies will pay whatever it takes to continue operating their businesses. You can cut supply all you want, and prices will rise until only the necessary supply is consumed. Domestic supply cannot fulfill that demand, so imports will continue. At whatever price, until the collapse. Then oil will get get cheap. Oh, wait, that already happened.
not disagreeing that is what govt wants. For sure.
As for the 500K house a rational person only does it if the payment is less than an equvilant rent. Why? On a no money down you are essentially renting for first five years no? So if you are not in for long haul and price is not going up you would only do it if you planned a 30 year campsite. Otherwise it maks no sense when you check the amotization chart. Iggnoring taxes here for argument sake, but we are not talking jumbos here. Yet.
I just find the idea that you can stimulate the same behavior that got us here to be nieve at best.
If there is a bubble it will be in something that the banks will benefit most by - commodity trading etc..this bubble creation is about sucking in capital from overseas and recapitalizing our banks at thier expense. WThe FCBs must knbow this and will eventually pull the carpet. Check out GCC moving to a single currency. How long will it be before their is a mad rush for gold or a global agreement hatched that moves the world off the dollar.
We'll just have to disagree. I think lots of people will be attracted to the idea of buying with none of their own money, at very low fixed rates, for 30% or so less than the prices they might have paid 2 years ago.
If I had no assets and no sense of responsibility, I'd be interested in doing this as soon as the cost, net of taxes, went below my rent. My guess is that covers most of the population.
Yes, I think it's ridiculous, but it is the consensus goal for our politicians, economists, and most homeowners.
RE dogs
Reformed burglers say that any dog is a deterent-they alert the owner. We have several, one advantage is that the younger dogs always compensate for the reduced hearing acuity and alertness in the older ones. In over 20 yeary we have never been burglarized. I work in the music business; my sound systems and related equipment are worth about three times what my house is worth. Just because you're paranoid....
poster formerly known as nitpi(Unrated) writes: \tRegarding option arm resets, it could go a couple of ways. I've heard it argued that because of declining rates, the resets might not be as problematic as a quick glance at the charts would indicate. poster formerly known as nitpi | 01.03.09 - 10:57 pm | #
Yes, but the Option ARM loans also recast, which is to go from negative amortization at some lower rate to fully amortizing at some higher rate. There is, of course, this UberNerd post by Tanta that explains this in the usual excruciating detail.
These loans don't just reset and increase. They also recast and explode.
sm_landlord, I'm not disagreeing with you. I was just pointing out that we import for a number of reasons, cost of extraction being just one. Availability of reserves to extract is another.
Decreased supply is an inevitability, though, so one way, or another, we're going to get rationing.
Baltimore Fire, Police Staff Lose $3.5 Million in Pension Money to Madoff Scam
Julie Bykowicz
Baltimore Sun
January 3, 2009
Baltimore police and fire employees lost about $3.5 million in pension money invested in a fund with ties to disgraced money manager Bernard L. Madoff.
* A d v e r t i s e m e n t
* efoods
Madoffs alleged $50 billion Ponzi scheme has dented public funds and nonprofits across the country, with new victims discovered daily. Also affecting Maryland is the demise of a justice foundation that routinely gave millions to organizations such as the Annie E. Casey Foundation and Baltimores Job Opportunities Task Force. The JEHT Foundation announced days after Madoff was arrested that it had lost everything and would close at the end of this month. JEHT was slated to give a consortium of Maryland crime groups, including the Baltimore Safe & Sound Campaign, $500,000 for crime fighting strategies, said Thomasina Hiers, assistant secretary of the state Department of Public Safety and Correctional Services. Hiers did not describe the project or say whether it could continue.
Madoff, who is on home detention after his Dec. 11 arrest in New York, provided a catalog of assets to the U.S. Securities and Exchange Commission on New Years Eve. Regulators are working to untangle the web of affected investors.
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If I had no assets and no sense of responsibility, I'd be interested in doing this as soon as the cost, net of taxes, went below my rent. patientrenter | 01.03.09 - 11:55 pm | #
Ah, but there's the rub. By the time costs go below rent it's too late.
patientrenter --
indenturing people to an overvalued house is serfdom. If ever there were a case of the gov preying on people this policy is it. They will try and incent people to stay in an overvalued place and pay so to keep bank loan current and it will mean your house is not marked fully to market even in a principal shave.
Saw an interesting Ad on teevee. Hyundai acknowledging escalating unemployment & offering buyers 1 year to give any car back if buyer loses their job. Never seen anything like it.
When unmenployment is rising very few are inclined to take on any payments. Velocity is heading south.
I am not sure you see the picture I am trying to paint. I apologize for not being clearer.
If the govt lowers long-term fixed mortgage rates to a very low rate, let's say 4%, and also supplies loans that require no money down, and also succeeds at re-igniting inflation, then the people who bought property at the very low rates will do very nicely. It's the people who suppy yhe money for the loans who will lose.
Once again, I am not advocating this, I am just pointing out that it can be done for several years, and it is what appears to be the goal of the people who run our economy. It would be very popular with homeowners who, as I am sure you know, are the majority of voters.
People were able to buy with stated income, low FICO, interest-only purchase loans that were already no recourse. To boot, they were convinced home values would always rise. Everyone that wanted to buy already did!
Now those people are already out (and have trashed credit) or are still in and underwater.
Ownership costs can go below rent in one of 2 ways - lower home prices, or lower interest rates and delayed principal repayments. Our economy's managers don't want home prices to get that low, hence their push to lower mortgage rates and ease up on lending requirements. If you lower rates enough, and allow enough delays in principal payments, you can always ensure that ownership costs go below rent, regardless of how overpriced the home is.
I don't think it's sustainable over the long run, but Mr Bernanke and others would disagree, apparently. And they are the ones making the decisions!
The problem with using equivalent cost to rent comparisons is the assumption that rents will either stay the same or increase. Try any of the rent/own analyses with a deflationary bent and suddenly house prices take another stair step down.
We'll have to agree to disagree. Interest rates can't cover the distance alone, and you won't see delayed principal without recourse.
The only way you could increase the buyer pool is to convert renters by essentially subsidizing the purchases (e.g., government pays half), and that just won't happen. Why would anyone that already bought a home on their own not dump theirs simply to buy another with the government coughing up half?
I don't care what the government wants, they cannot defy gravity.
The problem with using equivalent cost to rent comparisons is the assumption that rents will either stay the same or increase. Rob Dawg | Homepage | 01.04.09 - 12:22 am | #
Let's imagine for a moment that the Fed and the US Treasury had not stepped in, and asset prices were already a lot lower than they are now.
In this (imaginary free market) world, everyone would have been forced to confront the possibility that asset prices were not going to go back quickly to the levels they are still at today.
Now let's go back to reality. People still believe that current asset prices are, at worst, at their correct level. Many think they should be higher in the next few years.
In the real world, there are still many people who think current asset prices are the result of a temporary downturn, and they will increase to a naturally higher level after a few years, with a little help from a temporary stimulus to jolt them out of their current slump.
With this background, I think there are many people who would buy if there was no downside, because they would see some upside.
Interest rates can't cover the distance alone, and you won't see delayed principal without recourse. Comrade Bear (tj & the bear) | 01.04.09 - 12:27 am | #
And I was getting to that.
0% mortgages don't address what is commonly called "the monthly nut." Taxes, heating, upkeep, on and on along with even a mere 1:1 repayment of principal just isn't enough. There is no cure for too high home prices except lower prices.
I must retire for the night. C Bear and Rob D and S, I am in an awkward spot: I appear to be arguing against your views of what is right, but in fact I agree with you on what is right and sustainable in the long run.
I am only saying that the important people nearly all disagree with us. And I tend to agree that they can create inflation and low mortgage rates and easy money, and that will change everything for another few years. It will have bad consequences, but they can do it, I think. And they have all but said that they are determined to do it.
I think there are many people who would buy patientrenter | 01.04.09 - 12:30 am | #
Same argument people used years ago to suggest certain areas were immune from declines. People on the sidelines, the rich, foreigners, (rich foreigners), etc. Who are these people? Where are these people?? Why didn't they buy 4 years ago when there was no perceptible downside whatsoever?
People that would, did; the rest knew better (and still do). The government couldn't find enough people now if they threatened them at gunpoint.
Renter and Bear, you both make good points. Bear's argument is more pragmatic, IMO.
It's true we can't fight the FED renter, but the FED can't fight the world.
Nor can it adjust reality. It can provide incentives, but, that isn't the same thing. You seem to be leaning toward accepting their incentive, and there isn't anything wrong with that.
From a practical standpoint, though, commodity and utility producers are already in a position to raise prices, they already have a look on turnover velocity AND they have pricing power.
Gonna be hard to ex that out of anyone's buy/rent equations, in any case.
renter, if you've been patient a long time, go ahead. My personal belief is that more and more deals will open up on better quality houses at the price you are willing to pay now, but...if you've had enough, don't keep punishing yourself.
My sis just bought a house for 50% off "retail" (about 45% of replacement) and I couldn't be happier for her (partly because I couldn't hold her back any longer;)).
Don't know where she's at, but there's substantial portions of the country where buying already runs competitive to renting. If she's in it for the long term and loves the place then she'll be fine.
I really must get some sleep. But I can't resist responding to your last comment, Rob Dawg.
If interest rates were reduced to 1%, and principal repayments did not begin for 5 years, then it really would be possible for many people to buy very expensive homes, and keep them for 5 years. A $1 million home might have expenses of $30,000 deductible property tax and interest, and another $10,000 for other expenses. There are a few people earning $120,000 who would go for that.
It is not a good idea, but it is POSSIBLE to distort economic prices of significant commodities over long periods through vigorous govt action.
Thanks Bear. Yep, my only caveat to acquiescing was that she had to be prepared for at 15 years in that locale and no equity withdrawals while she was there.
She promised she understood and bounced off excitedly to the closing.
I am only saying that the important people nearly all disagree with us. patientrenter | 01.04.09 - 12:36 am | #
I consider the collective power of the CR crew to be far more influential than it might appear. I can tell you without breaking confidences that there are people here who have the ears of higher officials. Don't mistake a calm surface for lack of undercurrents.
Aargh! Thanks for the kind words, Hong Konger, but I am not about to buy a home!
That's the trouble with communicating over the wire, when you're not really good at expressing your tone in your writing. (I am not.)
I am absolutely opposed to inflation in general, and to price supports for housing in particular. I hope that some external economic event trips up the Fed on its way to inflation. I simply refuse to overpay for a home, regardless of what the Fed does to entice me.
I just don't see my views being shared by most powerful people.
Rob Dawg(Good) writes: \tI consider the collective power of the CR crew to be far more influential than it might appear. I can tell you without breaking confidences that there are people here who have the ears of higher officials. For instance, sometimes my wife actually listens to me...
You're absolutely right about attitudes and intentions. We've debated price support tactics ad nauseum the past few years (here, and before at HBB) and there's just too many unintended side effects that undercut the objective.
We had a German shepherd - one night he started a low long growl. It didn't quite get a up to a bark. Couldn't figure out what was bothering him and he wouldn't stop. Something was making him very unhappy but not enough to take him downstairs and let him out. Next morning, turned out some one had tried to break into the house next door. Good dog.
I work rescue, and I can't tell you how many stories I have of dogs saving the day. Here's one:
You mention an attempted break-in next door? One of the dogs we placed woke a family up because the house next door was on fire -- and those inside the blazing home were still asleep. They all got out safely, and came and got their own dog.
Yes, UK is not in Eurozone. Didn't intend to imply it was. My point is that Euro is not as strong as a bulwark against inflation as Germany, and the UK (GBP) is weak also. But Yen is strong. Japanese went through a lot of pain for the last 15 years, and a lot of that was to protect the value of the Yen.
Dryfly's jabs at Japan's mercantilism notwithstanding, I don't think Japan's politicians are prepared to undermine the conservatively invested savings of one of the most aged populations on the planet. Japan wants a currency that's not ridiculously overvalued, to preserve exports, but neither do they want their retirees to lose out to insidious inflation.
I think Japan would be very happy to have a currency with a value 10-20% below PPP, but that shows 0-1% loss of value to inflation over the long run.
I have a friend who is planning to buy in february in Santa Rosa Ca.He and his Fiancee' both work in the medical field,have good incomes and excellent credit.They plan to stay at least 15 years and will be putting 20% down.For them,in that market,OK.
... Hambrecht (BASF) also warned about a recession scarcely imaginable. "The Brunt of the downturn is powerful, "he said. The situation is extremely distressing. "Even if many citizens still do not acknowledge it: We need to prepare for hard times. It will be about sweat and tears. "Germany is in a deep recession, which in its magnitude was difficult to imagine.
Tom Stone - they will love it, until they go to the mall one day and leave their footprints in the asphalt. But access to Jenner, north and south, is awesome.
I have a friend who is planning to buy in february in Santa Rosa Ca Tom Stone | 01.04.09 - 1:07 am | #
I haven't kept up with Santa Rosa. I lived in West county until 2002. Have prices dropped so much there that you actually think that the bottom is near? That would be quite surprising to me.
It doesn't matter whether or not the bottom is near (unless you want to save every dollar possible). What matters is where you want to live, and how much you're willing to pay for it. I hope that's not too simplistic.
What matters is where you want to live, and how much you're willing to pay for it. I hope that's not too simplistic. 001 | 01.04.09 - 1:25 am | #
I personally consider California extremely overpriced still and the Bay Area in particular. I am loosely including Santa Rosa in the Bay Area. Santa Rosa benefited from extremely overpriced Marin RE and IMO is likely to suffer quite a bit. It also had lots of development with relatively little local job support.
Excellent thread, except for the crap about dogs. For every Lassie/home security moment, there are thousands of piles of crap, guests annoyed by the allergies and disgusted by the hair and droll, kennel coughs and vet bills.
Oddly enough, no mention of gold, which is the ultimate answer to all of the above questions.
There's no consequence quite like an unintended one, and what form of inflation is most maddeningly useless to the string-pushing debt-pushers at the fed? Gold, of course. And a little bit of DXO sure didn't hurt this week.
To paraphrase John D., for investors both small and large, gold is "an angel of mercy, reaching down from the sky, and saying Get into the ark...We'll take all the risks.' The TARP could never be that anymore than I could be an NFL linebacker.
When I was a kid, my dad bought a 3/1 house in Mountain View (Emily Dr) for 13,000. He sold it a few years later for 16,000 and thought he made a killing. No telling what that house is going for today, but I bet it far exceeds inflation. So, yes, housing is surely overpriced, especially in the BA, and for most of CA, for that matter, no doubt about it. But where else would you rather live? I am CA, born and bred, and I can tell you I would be living there still, if I could afford it.
the urge to keep one's DNA on the planet is indeed a strange and potentially costly one. but at least one has the excuse of biology and a socially acceptable brand of narcissism.
here's a nice quote from an excellent NYT article out this morning which should appeal to the crew here:
"Jealousy and begrudgery are still alive and well in Ireland, and whoever eradicates them should be prime minister for life. Its part of the Irish psyche and it is the result of 800 years of being controlled by other people, of watching everything the master or landlord is doing.
But where else would you rather live? I am CA, born and bred, and I can tell you I would be living there still, if I could afford it. 001 | 01.04.09 - 1:44 am | #
I love CA, too but have lived in many places around the world. Each place has its own attractions. However, the BA is one of my favorites especially West Marin.
Here from the FT: Western countries should close their markets to sales of Chinese trains because China's domestic market is closing to outside suppliers, says the head of one of the world's largest rolling stock builders.
In a Financial Times interview, Philippe Mellier, chief executive of Paris-based Alstom Transport, also claimed that Chinese companies were offering trains for export using technology derived from western suppliers. Such technology is usually supplied on condition it not be used outside China. ...
I haven't kept up with Santa Rosa. I lived in West county until 2002. Have prices dropped so much there that you actually think that the bottom is near? That would be quite surprising to me.
RE, I just posted NODs and Trustees Deeds for Sonoma. The numbers are back up, following California's failed law delaying the foreclosure process. And I do watch houses in Santa Rosa; the prices are falling fast. Much more trouble ahead.
"Jealousy and begrudgery are still alive and well in Ireland, and whoever eradicates them should be prime minister for life. Its part of the Irish psyche and it is the result of 800 years of being controlled by other people, of watching everything the master or landlord is doing.
bgates | 01.04.09 - 1:49 am | #
I loved that quote myself. I lived right across the street from the Ballsbridge development that Dunne was/is planning. Prices were out of this world. My flat, bought in 1986 for 36,000 Irish Punts ($50K USD?) was worth >$1,000,000 a couple of years ago. Now? Who knows? No property taxes, so who cares.
The most expensive house ever sold in Dublin was a few years ago for 60 odd million euros. They tore it down to rebuild. Hey, it was on Shrewsbury road, but still...
Born in Palo Alto, raised in Redwood City, and Mountain View, With stints in Eureka and McKinleyville, Point Arena, Anchor Bay, and Gualala. Extensive family there, to this day. My God, I love that place. It hurts me to hear it disparaged, although I can understand the criticism.
Quantitative easing, a way to flood the banking system with large amounts of money, "is a way to mimic below-zero rates and provide support to the economy," he said.
Since the financial market crisis erupted, the Fed has created several new programs aimed at bypassing the traditional banking system and smashing through the credit-market logjam, including the direct purchase of mortgage-backed securities.
Even so, the U.S. jobless rate appears on pace to exceed 8 percent in 2009, from the most recent reading of 6.7 percent in November, Evans said.
I tuned in late, but what's not to understand about inflation? Looked at in terms only of real estate prices, it isn't a panacea. But if the root problem is importing too much crap and not exporting enough, inflation tends to solve that nicely, without the embarrassing anti-free-trade implications of tariffs. If the government has borrowed a bit too much from abroad, inflation solves that, too. A goodly slug of Dr. Inflation's elixir cures all!
S. was asking about its effect on expectations... Well, there could be a bit of a hangover, twitchiness or compulsive gambling.
Begrudgery is still alive and well in Ireland. So is old fashioned graft and corruption, like nothing you will ever see in the US. I kind of like it. A well placed "brown envelope" can make things happen, even for the ordinary person.
Told an epileptic friend several years ago about seizure alert dogs, and she can now drive with the dog able to detect brain waves preceding an episode.
Why are there people pining about inflation going into trillions of dollars of asset losses and the collapse of a credit bubble? Obama spending a trillion is going to add to the money supply enough to counteract all the layoffs at local government level?
The inability of fiscal stimulus to pull an economy out of a deflationary spiral, once it has entered one, has been proven by the Japan example. 20 years of ZIRP hasn't led to hyperinflation in Japan; why would it happen here? Look, say the new admin spends some money revamping our infrastructure. Better roads, public transportation, nice. And the money goes to roadbuilders, manufacturers, whatever. Are they going to take that money and expand capacity? Hire more people? Most likely not, they know it's a one-time stimulus. The money goes right to the bank or worse, to their vault. The money just doesn't move; it has no power. Will those in power try to stimulate more? Perhaps, but with falling tax revenues and rising debt service, they can't keep stimulating as much. Some people seem to go from here to the Zimbabwe scenario, but that would be suicidal at that point for those in power.
This system isn't about savers. This system is meant to keep you on the f*cking treadmill. It is engineered to destroy savings in order to force progress. Maybe it isn't even such a bad thing. Too many lazy, over-reactive, ignorant people with too much time on their hands probably won't bring out the best in humanity, at least with our current cultural disposition. Regardless, culling the herd is a law of nature. War in 2009. God requires the sacrifice. Let's hope the God of Knowledge can beat out that one from the 6th Century, but if I do remember correctly, some important mathematical books were washed out and re-used for Christian purposes. Better duck, because here comes the pendulum!
Japan is not US, they reacted slower with less.
It may NOT be a one-time stimulus, it can continue indefinitely.
Failing tax revenues and rising debt services have Nothing to do with stimulus levels. 8T was promised, and that was 8T that wasn't there, did not stop them.
Don't see hyperinflation, just see inflation in consumables and deflation in housing. And a devaluation of the dollar albeit a gradual one.
The prudent savers can still get decent deals on long-term CDs and corporate bonds (provided one is very choosy here). Why do people whine so much? Deflation is GOOD for savers. Inflation is bad. What do we have right now? Oh yeah, big deflationary event of our lifetime? Take advantage of it.
no, but we certainly are trying to ape the worst aspects of their policies to the letter. i strongly recommend the book "dogs and demons" once again, especially in light of the received wisdom in regards to our proposed renaissance of natl infrastructure spending.
The inflation has been slayed in its entirerity by the people who want to steal the wealth from savers under its cover.
There is no inflation with out wage growth.
There is no wage growth without employement growth.
There is no employement growth without need for hard labor.
The need for hard labor is eliminated to the greatest extent by technological evolution.
The technological evolution will be there as longs as there is a possibility of replacing hard labor requirement.
The availability of hard labor (population) is so far growing as good rate.
Now, repeat after me.
The fiat currency is dead.
The fiat currency is killed by the fox (CB(s)) who are supposed to be huarding the hen (fiat).
The fiat currency has life only when people believe in it. You take away the belief the fiat currency is instantly.
If you still feel that the fiat currency is alive then you wouldn't be talking that gov can inflate or fed can print or US will not default or deflation will npt happen here.
If anyone wants to save the world, then they must save the fiat currency.
No fiat currency; no world No fiat currency; no world No fiat currency; no world
It is not about how long you live; it about how happy you lived in the time you have.
It is not about how much wealth you have; it is about how genereous you are within your means.
It is not about you haave a good job; it is about how many people u helped to retain or find one.
This is depression of the nth order magnitude and 1929 is walk in the park. This is going to last for decades and decades; may for your entire life time.
People can always have a good life even under tough condition
Embrace the depression; you will have enough strength to face it.
To what extent a living person will certainly die, to that extent this depression which is here right now will also be alive and kicking for next couple of decades at least.
Rome fell due to inflation of the Mint, followed by price controls, shortages, and then the failure of the market economy. People left to the countryside to find food. Division of labor broke down. High taxes were the last attempt to finance its enormous military. People turned to feudalism for the next millennium. Enjoy the sequel.
i suppose marin co has marin city, much as SF has hunter's point... the exception that proves the rule? bgates | 01.04.09 - 2:04 am | #
I thought that you were talking about West Marin. Bolinas is famous for its "wars" against outsiders. As to Marin City, I actually lived there in the seventies as a distinct minority.
Thx for the responses Anonymous, What is the dollar going to devalue against, with other major currencies also trying to devalue? It seems to me currency devaluation is a relative event, requiring another currency for the dollar to devalue against. You're right, Japan is STILL trying stimulus packages after all these years, but the high level of debt/GDP has become a political issue there, and will become one here if we reach those levels (170% of GDP right now, I think). The thing is, neither fiscal nor monetary policy happen in a political vacuum. (I think Bernanke doesn't really grasp this, which is his big failing) Political realities will make successively larger stimulus packages difficult.
"The thing is, neither fiscal nor monetary policy happen in a political vacuum. (I think Bernanke doesn't really grasp this, which is his big failing) "
of course. fiat dollars are not economic units, they are political ones. ben's big failing was deciding to engage in any activities outside of academia, where his idiocy was safely contained.
as for bolinas, 900K median SFRs will do wonders for keeping outsiders out. I wonder if those prices will be as "sticky" as oil-slicked seabirds on the way down...
o, but we certainly are trying to ape the worst aspects of their policies to the letter
No arguments there, just saying that the humongous amounts thrown will result in inflation.
Am confident that means will be found to circumvent this blockage of money flow, even if the banks don't lend.
Perhaps the FED will open a consumer and investment division itself and directly stimulate velocity.
Are they going to take that money and expand capacity? Hire more people? Most likely not, they know it's a one-time stimulus.
Maybe they will take that money and start hoarding hard assets instead of treasuries? Those with assets are barely saved via the reflation and those without are pushed into a more extreme form of poverty? That would align with the first world becoming more third world, which is what you would expect in a system where the elites will take whatever measures necessary to preserve their wealth, whether those actions are fair or just.
"That would align with the first world becoming more third world"
this has been painfully obvious for a while now, GINI index, preening and somewhat useless military, economy dependent on tourism and money laundering... but of all of the countries of latin america, the USA is probably the most interesting.
Competitive devaluing and beggar thy neighbor will eventually stop when it is shown to be ineffective.
Successively larger stimulus packages will indeed be difficult BUT not impossible due to the nature of the system in place.
bgates: and the black plague set the stage for the greatest flowering of human culture ever!
Exactly. Want prosperity? Kill off a decent portion of the population. The plague ended feudalism and nobles had to tend their own fields. Oh, what I would give to see Black and Scholes toiling in the soil for their own sustenance. Where do people think the American Dream came from? Yep, the dead sacrificed during WWII. War 2009. A sustainable system would monitor and manage resource consumption per-capita. Anything else leads to only one outcome: War.
Okay, so say that the dollar and other major currencies devalue against commodities and PMs. So everyone buys less gold and other stuff with the same money? But more house? Something about that doesn't jive to me, I think it's just that I have a hard time seeing gold used as a currency again, but that might just be me and my old paradigms of money. So perhaps you're right.
dr strangemoney(Unrated) writes: Maybe they will take that money and start hoarding hard assets instead of treasuries? Those with assets are barely saved via the reflation and those without are pushed into a more extreme form of poverty? That would align with the first world becoming more third world, which is what you would expect in a system where the elites will take whatever measures necessary to preserve their wealth, whether those actions are fair or just.
Maybe, maybe not. It seems to me more likely that people will hoard cash over gold, because cash is more readily useful in the current paradigm. Even if they do hoard some hard assets, what do the people selling those hard assets to them do? My guess would be hoard the cash!
ille_vir: The thing is, neither fiscal nor monetary policy happen in a political vacuum.
I think political appropriation of fiscal money will be our direct path to a more third-world economic system. So much so that I've already got a horse in that race. I think looking at economic systems further down that path are instructive when making plans for the future. I hope that Obama's advisers are not so self-interested, but, knowing human nature, my plans are for the obvious.
Stimulus programs are kind of like priming the pump. The more time a dollar changes hands, the more tax dollars are generated. I read once where a dollar changes hands approximately twelve times a day (hard to believe, I know). That means one dollar 'creates' another dollar every day, as far as the government is concerned, (at ~8% tax). My point? I can't remember -
ille_vir: So everyone buys less gold and other stuff with the same money? But more house?
Yes, that has been what I have been struggling with in my hypothesis. But after spending time in the third world, I think it makes sense that everything becomes much more expensive, consumption drops much more, and a politically corrupted elite take control of a greater portion of the resources and access to financing. Holistically it makes sense that the system would rebalance in that way -- I think it makes sense to look at existing configurations of stability to understand how we might evolve. But I also think that the stress in the transition could easily lead to war.
I think the self-interest of US politicians lies in not destroying faith in their currency. Hyperinflation scenario is not in the interest of anyone, nor is a shift to a PM currency. That's not to say one shouldn't hedge their bets, btw. I've been looking to add to my miniscule gold holdings as my budget allows. The more time a dollar changes hands, the more tax dollars are generated. That was kind of my point, when the public stimulus money stops moving right after the gov't spends it, it is relatively powerless won't lead to inflation.
G'night folks, and thanks for the late-night company.
It seems to me more likely that people will hoard cash over gold, because cash is more readily useful in the current paradigm
People will hoard cash until it is evident that cash isn't doing the trick. Once people realize that cash is no longer a store of value, it will be divested out of.
So far the USD is still accepted as the ultimate currency to hold judging by the >60% of world reserves in it.
If the current financial system is to survive, a devaluation(inflation) of the dollar would be most beneficial to the US, much of course to the detriment of the rest.
Still i see inflation in the cards and not deflation except in housing assets which is evident.
I think the self-interest of US politicians lies in not destroying faith in their currency.
Compare the dollar index of the last few years and you will be surprised.
Devaluation is already being applied.
Inflation gets the gov out of debt.
There is no reason to believe the public money will stop moving if the promise to print and distribute indefinitely is implied as is happening currently, with the policies and rhetoric expressed.
001: dr strangemoney - war among whom, might I ask?
Islam and somebody. I think the margins are cracking. Now that western civilization's magic wealth printing machine of modern finance has died it's ignoble mathematical death, other philosophies of living will gain more traction and many more followers.
Mt friend (and I mean that), don't sell western civilization so short. Not that other philosophies won't gain traction, but I doubt that they will be Islamic, especially of the fundamentalist variety. I have heard that Islam is growing, true. But so is Christianity, as well as atheism. Which one will dominate? I'll place my bet on a western variety.
RE-
Hambrecht (BASF) also said that the banks should have been more or less nationalized, since instead of the government money going to serve the bank's customers, the banks used it only for themselves, to the disadvantage of those customers. Hambrecht, here, of course is talking about industrial concerns - the German economy is still very much oriented to old fashioned industrial policies, having at least partially missed the boat on following the dynamic American economy into a post-industrial wonderland filled with financial engineering.
As for 'Western countries should close their markets to sales of Chinese trains because China's domestic market is closing to outside suppliers' - I can already hear a certain clacking keyboard remarking that trains aren't an export market worth getting involved in, as the inexorable future of a fulfilling human life is exurbia. At least in this case, the U.S. doesn't really have to worry all that much about a trade war - it is pretty much a market reliant on train imports anyways.
"... a certain clacking keyboard...", too funny, r_t_o, and I'm no Dawg apologist, but he only calls it as he sees it, and we can only hope that one day he'll jump on the 'progress' train, no matter how much it costs him.
One of my dad's friends runs a dealership in Texas and I have to say that it's one of the most leveraged operations I've seen. He apparently doesn't own the inventory or land since he has loans out against them. To him it's all just a real estate play, which has paid off handsomely over the last couple of decades as the city expanded. He also makes a nice steady dividend from contracting out the dealer maintenance concession (since mechanics will pay for that kind of work).
He just sold to condo developers 2 years ago, and opened a new lot on the edge of town. Today? I don't know, but I expect that whoever he owes for the real estate and cars is soon going be getting it back "at a discount"...
One comment on the FED forcing money to circultate (and the banks to lend) leading eventually to inflation...
I read (perhaps here or on TBP) that with the toe in the door of the FED paying positive interest on reserves to re-capitalize the banks (and steal from the rest of us taxpayers), that the next step is to force them to lend by setting the interest rate negative. That way, if they aren't lending (against the reserves the are required to have) they're losing money.
There seem to be endless clever ways to print money by creating new low interest debt rather than just printing it, and even ways to force the monetary velocity of high powered money up. It seems like the rise in interest rates caused by such inflation would kill housing sales (along with the dollar) even as it saves those in houses.
The question is, "when does the treasury market crash?", not if.
At least in this case, the U.S. doesn't really have to worry all that much about a trade war - it is pretty much a market reliant on train imports anyways.
Uh, no. EMD and GE Transportation are major players in the diesel loco market, and export worldwide. The US intermittently imports transit products, but a lot of contracts required local assembly.
Your anti-American crap is getting to be almost as annoying as Rob's anti-urban rantings.
Hard to say in the new Tejas. I grew up there, but the boom has changed people's judgment. I'd say he's probably got a house with some land on it and put some kids through school. No new trophy wife as would be required here in Cali. Lord knows what he has in the markets. You can't take the house away in Texas even if he has personal liability. I'd say he'll probably lose some friends in the local banking community, but then he's at retirement age anyway.
Did anyone catch the sales flyer someone posted a few days ago for a (iirc) smallish industrial building. 90% SBA financing. Was this broker on drugs or can you still get a 90% sba loan??? And if so...
Do the SBA lenders still tell you that you need to occupy 51% but then whisper "but no one ever checks"?
as for bolinas, 900K median SFRs will do wonders for keeping outsiders out bgates | 01.04.09 - 2:46 am | #
Just poor ones. Those prices reflect the fact that Bolinas finally lost the outsiders battle - when they started getting the likes of Susie Buell as residents, things changed dramatically.
So I wonder what could explain the extra lag this cycle? Could the pipeline have gotten that much longer simply because of labor shortages? That doesn't see likely.
Was at a CBL mall today in Chesapeake Virginia was told there 9 stores closing by months end .
sm_landlord(Excellent) writes:
So I wonder what could explain the extra lag this cycle?
Generous credit terms?
What do you think, CR?
Could the pipeline have gotten that much longer simply because of labor shortages?
I'm assuming it's all the paper pushing that occurs pre-building: zoning, environmental surveys, notice and comments, etc.
Any hope that the Middle East debate will stay in the previous thread?
It'll be differnet this time because the fundamentals are so strong
If you don't want to throw up after reading this article about the bailout boondogle, I don't know what would make you upchuck.
The 10 worst bailout boondoggles - MSN Money - Slide show
SRS anyone?
Of course, the REITS can still rally. I own SRS, but have no faith, because all sectors will ignore any bad news. Gaza strip mall REITS will prolly rally on Monday.
CR,
Has your view of the severity of the recession changed given the additional data points that have come out over the past few months?
In Q3-2008 fall in residential fixed investments contributed -0.7% to the QoQ GDP growth rate, while continued investment in non-residential structures contributed +0.3% (both of these GDP components are comparable at the absolute level)
I do not know if the residential fixed investments will continue to fall (they've fallen enough), but CRE is likely to become a noticeable contributor to GDP contraction in 2009.
Did they get the bank for the 1.3b in cash? Supposedly worth 13b? Yet it had 30b in assets a year ago...
A 2007 quote
Grove Nichols, the executive vice president of corporate communications for IndyMac, said there was a key difference between his company and the mortgage lenders that are suffering on Wall Street. IndyMac isnt a mortgage real estate investment trust -- it's a savings and loan association with $30 billion in assets, and therefore doesnt suffer from the same vulnerabilities as mortgage REITs
And
Jan. 3 (Bloomberg) -- Private-equity investors led by Steven Mnuchin, a former Goldman Sachs Group Inc. executive, agreed to buy IndyMac Bank from the Federal Deposit Insurance Corp. and inject $1.3 billion in cash, a rare purchase of a failed financial institution by non-bank buyers.
snip
I am not impressed with the amount of capital being put in, Bert Ely, chief executive officer of Ely & Co. Inc., a financial institutions consultant in Alexandria, Virginia, said in an interview after the announcement. Why didnt any bank buy it? IndyMac doesnt strike me as a very viable bank.
The investor group and the FDIC signed a letter of intent for the transaction, which the agency said in a fact sheet was valued at about $13.9 billion. The investors will inject about $1.3 billion in cash into the new company when the deal closes, later this month or in early February, the agency said.
"So I wonder what could explain the extra lag this cycle?"
Denial. Hardheadedness. The same stuff you see on all the market talk shows, the stuff that drives the stock prices, the denial by government of the problem until it took a huge piece out of their backsides.
I never saw the same thing in other recessions.
Who is on the hook for put-back of any dud mortgages sold the Fannie, Freddie, or other mortgage securitizers?
Is the FDIC going to eat it?
"I never saw the same thing in other recessions."
--wally
Neither did I, hence the question...
So, if I read this right then now is the best time to get back into REITs?? I think their timing is different from CR...
For the first quarter of 2008 REIT shares, as measured by Morgan Stanley (nyse: MS - news - people )'s RMZ index, achieved a return of 1%. That contrasts with a loss for the broad stock market of between 7% and 14%, depending on which index you use. At a REIT conference in early April, Martin Cohen, the co-chief executive of Cohen & Steers (nyse: CNS - news - people ), the largest REIT mutual fund manager, noted that historically the trusts have run in cycles of about eight years. You get seven fat years followed by one lean year. We just finished a lean year. At the same conference Citigroup (nyse: C - news - people ) analyst Jonathan Litt, who was about to depart and launch his own fund management group, pointed out that the five REIT bear markets since 1972 have lasted 18 months on average, with price drops of about 25%. The current bear market, he said, is now 14 months old, and REITs are 24% off their peaks. The pattern would seem to suggest that this is a great time to get back into them.
sm_landlord, Comrade Byzantine_Ruins - it seemed that lending was very loose for CRE for most of 2007 - much longer than I originally expected. Apparently lenders believed the problems were "contained to subprime". Since CRE projects take some time to build, we are now seeing those projects being completed.
I felt lenders would tighten sooner because the historical pattern is well known (I've been writing about it since I started this blog!)
Nemo keeps joking that I'm just starting to cover CRE - but I've actually writing about how the CRE bust would follow residential for a few years. I deleted Nemo's comment because some people might not realize he is joking.
best to all.
Dave of SV writes:
"SRS anyone?"
Very tempting, particularly since IYR got no traction in Friday's lift off. But damn, those 2x shorts can be slippery (look at EEV).
Mike in LI: left a follow up on last thread @ 9:32. No reply needed, just wanted to close loop.
Bullard: Inflation target would aid deflation fight
I have coworkers in NYK who were getting all stressed about a new rental property back in 2007, and I was suggesting that since they would be long term tenants, surely they could grab an offer by the short and curlies and really do the biz, crank it down by time/volume/reliability?
NYK Office : Oh no, no, that would damage our reputation.
Me: But not your reputation for being easy marks and saps?
NYK Office: You cannot apply your standards here, DC is sui generis, NYK has its own dynamics, it's different up here. We need to pay this price in this market to get what we want.
Me: to get what you think you deserve. Hmm.
Someone else signed the approval.
C
Anybody get the feeling that the old models are not working for forecasting?
The article I pasted from, these are not stupid people. They are even putting their money on it.
It will be interesting when they switch to the "doom and gloom" model.
I guess, looking at the index charts, you'd look first at S&P resistance at about 1000. Interesting that just a little over 1000 is a 38.2% retrace between May and November.
Past that, there's a big gap around S&P 1090, 1100. 1090 is about a 50% retrace.
Failure there would give you a target of about 600 on the S&P.
Mike in Long Island, the severity of the recession is hard to call. I don't think it will be a depression (usually defined as 10% decline in GDP), but it definitely will not be mild.
I originally projected unemployment wouldn't reach 8% - but I think I'd increase the odds that the unemployment rate will go higher than that projection. I'm trying to put together another estimate.
I think the scariest thing is the rapid slowdown in international trade (and U.S. exports). That is happening faster than I expected.
Of course I expected the CRE slump. And there is some good news too (falling gasoline prices, a major stimulus package, and fewer layoffs coming in residential construction - since residential has already been crushed). I'll have more later ...
best to all.
Nova, re: REIT cycle
I wouldn't compare anything to historical trends.
And if you do believe in historical trends, then this bear market will end with a P/E of 6-8.
I calculated December 2008 sales for San Fernando Valley today. Short sales and foreclosures were almost 70% of closed sales. This matched a similiar trend for nearby Ventura county, 70% were distressed properties.
Effective Demand: San Fernando Valley foreclosure and short sales contine to climb - December 2008
hey nova - what did you make of the white-tails links in the end? Reckon it's as bad as it seems?
C
CR,
Check this blog out for the graphs. Everyone and everywhere...
Euro Watch
"Anybody get the feeling that the old models are not working for forecasting?"
The feeling I have, nova, is that lots of industries (retail, hotels, etc.) thought the heady days of the bubble were the new reality. They simply failed to account that a large part of the GNP and of consumer spending was simply borrowed from the future and could not continue. There are still a lot of people who think we will 'return' somehow.
Counterpointer | 01.03.09 - 9:52 pm
Yes. I do.
Calculated Risk writes: fewer layoffs coming in residential construction - since residential has already been crushed.
It is only good news if those people laid off from residential construction found new jobs. If they remain unemployed, then it is scarcely a good news, just lack of new bad news.
Calculated Risk writes:
"sm_landlord, Comrade Byzantine_Ruins - it seemed that lending was very loose for CRE for most of 2007 - much longer than I originally expected. Apparently lenders believed the problems were "contained to subprime". Since CRE projects take some time to build, we are now seeing those projects being completed."
CR, I hear you, but I'm stunned; gobsmacked if you will. If the lenders actually believed that, they must have been channeling S&L execs from the 1980s.
If I accept your explanation, that leads to the conclusion that CRE lending decisions were being made by people less than half my age (and illiterate ones at that), and I simply do not want to believe that.
If so, where were the adults? This is not comforting...
Anybody get the feeling that the old models are not working for forecasting?
nova | Homepage | 01.03.09 - 9:49 pm | #
Uhhhh, yeah. Like two years ago. It has been my one mild complaint with CR over that time. Extrapolation no longer comes close.
The Coming Bust In Commercial Real Estate: Why Developers Are Desperate For the Dole
Eeek. Nova is brief. Now I freak.
Brought to you by the New Zen Koan Collective.
C
Interesting topic in the above link is who wins if the real estate tycoons don't get their TALF bailout.
Residential is still building, including mixed use, where I live. A big mixed use dev. just started doing site work near Vienna metro in No. Va.
Residential is still building, including mixed use, where I live. A big mixed use dev. just started doing site work near Vienna metro in No. Va.
nova
What else you gonna do? Give the loan back then go home and watch Oprah?
Counterpointer
Read the new post on the Euroblog. We are standing on the precipice and our bladders are empty.
Time to watch Tropic Thunder
CR,
Thanks for the reply. Looks like you had some beautiful country to get yourself lost in.
"There are still a lot of people who think we will 'return' somehow."
--wally
We'll return all right: to the long-term trend, and beyond!
I have previously predicted that we would return to inflation-adjusted 1997 pricing on RE in general. Now I'm thinking that I was excessively optimistic.
Residential investment should be the first thing to bounce back since it got hammered first and very hard. First signs of recovery: Sales volume on existing homes bottoms out and starts to come back up. I'm thinking March-May 2009.
emo's comment got the axe from the HMFIC, interesting.
no more jokes kids, or maybe just one, its an oldie but a goodie:
DECEMBER 31--Following his arrest earlier today for drunk driving, Charles Barkley told Arizona cops that he ran a stop sign because he was in a hurry to pick up a girl who had "given him a 'blow job' one week earlier," which the former NBA star described as "the best one he had ever had in his life." According to a Gilbert Police Department report...
CRE is still building in Chicago. In the 10 block walk from the train station to my office there are 6 commercial skyscrapers going up and the Trump Tower. A couple are condo/hotels. Others are office buildings. Every time I walk past them I think to myself do the owner's of these projects know they are already bankrupt? I suspect they do. They keep building them anyway once the foundation pilings are poured.
smoking_crater writes:
""Charles Barkley told Arizona cops that he ran a stop sign because he was in a hurry to pick up a girl who had "given him a 'blow job' one week earlier," which the former NBA star described as "the best one he had ever had in his life.""
He should have just sent a limo...
Doc at the Radar Station writes:
Residential investment should be the first thing to bounce back since it got hammered first and very hard. First signs of recovery: Sales volume on existing homes bottoms out and starts to come back up. I'm thinking March-May 2009.
And this is regardless of the unemployment situation?
And this is regardless of the unemployment situation?
MrM
Yes.
.
sm_landlord(Unrated) writes:
\tCalculated Risk writes:
"sm_landlord, Comrade Byzantine_Ruins - it seemed that lending was very loose for CRE for most of 2007 - much longer than I originally expected. Apparently lenders believed the problems were "contained to subprime". Since CRE projects take some time to build, we are now seeing those projects being completed."
CR, I hear you, but I'm stunned; gobsmacked if you will. If the lenders actually believed that, they must have been channeling S&L execs from the 1980s.
sm_landlord | 01.03.09 - 9:54 pm | #
Hell, Bernanke believed it - or at least said he did - why not the CRE lenders?
"Residential is still building, including mixed use, where I live."
I'm still busy- and I'm an architect. The guys who run the firm see a solid workload into the forseeable future. They don't really want my opinion and I don't give it... I just go to work and keep cashing the checks. I hope it keeps going and going, but we seem to be just about the only ones in town who are now in this position.
Doc at the Radar Station writes:
"Residential investment should be the first thing to bounce back since it got hammered first and very hard. First signs of recovery: Sales volume on existing homes bottoms out and starts to come back up. I'm thinking March-May 2009."
You could argue that it has already bottomed in some areas if you count foreclosures and distressed sales.
I see another bottom coming however. High-end stuff is still mostly dead, but not bottomed. The good stuff needs another "silent spring" in order for the prices to start adjusting.
"Hell, Bernanke believed it - or at least said he did - why not the CRE lenders?"
--bobn
Key words there: "or at least said he did".
Doc at the Radar Station writes:
And this is regardless of the unemployment situation?
MrM
Yes.
Really? Say, if the unemployment does go above 10% and those still employed being quite concerned about their jobs, who will be buying those homes?
sm_landlord writes:
So I wonder what could explain the extra lag this cycle?
Maybe it was that overbuilt in the first place.
If I was a lender and the future looked dim, I'd lend to a CRE developer longer into the downturn then I would a home bldr. Apt. bldngs, office complexes, strip malls would be attractive to take back after a small haircut.
I have previously predicted that we would return to inflation-adjusted 1997 pricing on RE in general. Now I'm thinking that I was excessively optimistic.
\t sm_landlord | \t \t \t \t01.03.09 - 10:03 pm |
I think the RRE will go back to the price/income ratio or price/rent ratio (whichever is lower) as of 2000 - 2001 - (before the funny money era kicked off by the Greenspan FED and maintained by the Banksters). But I thiink that by the time that happens, rent and income will have dropped too, because of the Greater Depression.
wally writes:
"Residential is still building, including mixed use, where I live."
I'm still busy- and I'm an architect.
Where do you live?
Well, everybody should go and get ready for the next pile of crap to come down the pike!!!
CR HERE IT IS:
Evans says Fed needs to mimic below-zero rates
| Reuters
Quantitative easing by the world reserve currency. Stunning.
Simply Stunning how desperate the Fed is getting.
They want to spark inflation, well here it comes!!! Lever up with any fixed debt for assets. This is going to be fascinating.
Someday this war's gonna end...
wally writes:
"I'm still busy- and I'm an architect."
I may have to hire an architect to figure out a way to fix a 1973 vintage house that is leaking like a sieve.
Architects aren't all going to go out of business, but they will have to take jobs that they would have scorned a few years ago.
Really? Say, if the unemployment does go above 10% and those still employed being quite concerned about their jobs, who will be buying those homes?
MrM
Look at the drop in investment here:
BEA : Residential Investment
Residential investments lead consumer recessions in the contraction and the recovery historically. There is a whopping amount of cash the Fed is creating through buying GSE debt. It's coming.
SIL works for WAMU in CRE.He was the only one at work yesterday in a 16 person office(everybody else on vacation).I don't know how many different phone lines,but he said he would have answered any of them and that there were ZERO calls for the entire day.He has not closed a deal in weeks and this is a man who with his partner set a company record of 165 million in just the month of May.
If leaking thru roof check chimney, gutters or facia. If ground level, dig up all vegetation around foundation, dig down, back fill with gravel, slope away from foundation
Citizen AllenM writes:
Quantitative easing by the world reserve currency. Stunning.
So, what will China and Japan do with their reserves? Will they try to front-run the inflation?
If so, where were the adults? This is not comforting...
The question may be "are we the children?"
"A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."
John Maynard Keynes, 1931.
Doc, doc, doc, how can you possibly think that?
The foreclosures are only half over.
Shiller index has Miami 38% off as of October, according to post 2 or 3 threads down. Assuming 1% a month declines, it will bottom--if we are lucky at half off in Oct 2009, and then just head east for a while. If we are not lucky it will continue dropping 1% a month for another 6 months or so.
Obviously, I am not bothering to compound.
The Fed/Treasury have yet to implement a single program that actually has positive results that can be pointed to and documented with numbers (unless preventing insolvency of financial institutions from being public knowledge counts as 'positive').
And Evans from the Chicago Fed (in the article above by Citizen AllenM | 01.03.09 - 10:15 pm) clearly says that the Fed has started by-passing the banks with direct programs, but that won't be enough - and Obama will need to do massive fiscal stimulus.
So why does anyone think that we are anywhere near to 'turning the corner'?
There seems no hard evidence of this yet.
ova - great graphs, I must find the further refs to shipping, to give a sense that air is matched by shipping.,
But none of it looks good.
Prepare
C
"Any hope that the Middle East debate will stay in the previous thread?"
Oh please, give everybody a gun and let then settle it themselves..
Citizen AllenM - If everybody moves in a herd the collective result is inevitable.
"If it were not constrained by zero, those models would want to push it below zero, but that's not possible," Evans told reporters after a panel at the American Economic Association's meeting in San Francisco.
Yes it is - deflation by its very definition is less than zero.
An admission that deflation not at the door but already in the house.
Doc at the Radar Station writes:
Residential investments lead consumer recessions in the contraction and the recovery historically. There is a whopping amount of cash the Fed is creating through buying GSE debt. It's coming.
Well, eventually everything recovers.
I can see this cash going into refi, but not in new purchases. With the consumer confidence at historic lows and rapidly rising unemployment, I remain skeptical of any near-term recovery in residential real estate sales volume.
barley: An admission that deflation not at the door but already in the house.
and about to eat the kids and pets.
Doc, doc, doc, how can you possibly think that?
I just said "the first thing" to come back would be sales volume. PRICES are going to continue to fall for quite some time.
Anonymous writes:
"If leaking thru roof check chimney, gutters or facia."
Already have done that. Still leaking. The house has decks that are unprotected by the roofline.
I'm considering modifying the roof structure to increase coverage. But I would need help from an architect to make that sort of structural modification and remain with code and covenants.
"Doc, doc, doc, how can you possibly think that?"
I have to go along with lawyerliz on this one.
Oddly enough, if you have to invest, I would recommend that you think about equities, preferably equities outside of the US, but here too. Bonds are going to undergo a tremendous slaughter as inflation becomes apparent.
The next big problem is the removal of stimulus will provoke huge drops that ensure yet another round of stimulus to keep this economy staggering forward.
This is the death of Mish and Jas' deflationary spiral. There will be no deflation as money freshly printed starts ripping through this economy.
This will be another fascinating year- One Trillion in STIMULUS!!!
Who is going to hold onto a dollar five seconds longer than necessary?
Someday this war's gonna end...
So the models can't go below zero, by definition?
Chortle, chortle.
And ref last thread or 2, my mom's neighborhood is well kept with a variety of people of all ages and races and my mom is not poor. If the police aren't helping her, then who are they helping? Answer--they were really uncooperative over the phone until I called back so many times, they realized they wouldn't get rid of me--they are helping only on actual murders (I think this was attempted murder as mom described it) and obviously rich people. BFD.
barley: An admission that deflation not at the door but already in the house.
Accrued Interest: Deflation: A new threat
"The Fed isn't trying to revive the stock market nor is it trying to avert a recession. Those that continue to think in these terms will continue to misunderstand the market for the next two years.
The Fed is currently focused on deflation...."
"preferably equities outside of the US, but here too. Bonds are going to undergo a tremendous slaughter"
Citizen AllenM
I might agree but now disagree about the timing. The damage is already done. Time to pick the bones. I'm just learning paper stuff but already way ahead on the bottom line. Suggest LQD, HIO. But if ur brave go into specific lines - GMAC debt rose 46% in two days...a great time!
AllenM,
Just curious what you think will happen with mortgage interest rates in the face of inflation. Do you believe that the Fed will keep the mortgage rates well below inflation as long as needed to clear inventory?
Ok, it's more like this:
YouTube - IGGY POP and the STOOGES "search and destroy"
C
Popeye -
Barkley drives his own car? Whatta maroon -
Starting in 98 I started buying single family rental property with 10% down thru Va foreclosure .I stop in 2004 when you could not rent the house to cover the mortgage cost .Based on rental cost to house prices in Va beach area ( based on my 2 cent formula ) We need to drop 30% more in price before I get back in the housing market.Today I stopped by a house I bought in 2002 for 135000k 4 bed 2 1/2 bath . Today I see the same model listed for $259000 .I'm a buyer again on that house at $165000 ish. IMHO housing should bottom late in 2010 .
lawyerliz writes:
Doc, doc, doc, how can you possibly think that?
The foreclosures are only half over.
recovery set-up
I've seen this cre stuff happen at least 2 or 3 or maybe 4 times in South Fla and I am absolutely convinced that the vast majority of so called bankers have not got the slightest idea what they are doing.
A year and a half ago, I said, why don't the adults let the projects get to a good point and then shut down the damned tower construction. They don't even have to give the developers a bad credit rating, or sue on personal guarantees or anything. Anything would be better than throwing money down this black hole.
The answer is that there is no upside in admitting you've made a mistake, and when not playing with your own money, there is an upside to not caring. Gosh, those imbeciles who couldn't see what is so patently obvious just continued to get paid for another year and a half.
Maybe bankers who make these decisions should be forced to put a couple thou of their own money in these projects. Bet even that tiny amount would be enough to stop some foolishness.
Mortgage rates?
Who cares?
In a couple of years you will no longer be able to get a mortgage.
At least in dollars.
I am continue to think that this is the beginning of the end of the dollar as reserve currency- a position that I have consistently advocated as the deflationary mafia has persistently stated the Fed would allow total deflation. They won't.
'scuse me, I have a seven year old melting down.
Someday this war's gonna end...
In a couple of years you will no longer be able to get a mortgage.
Bah! We'll see.
You can't get a mortgage in South Fla right now.
Except FHA, hard equity, seller financing or you have an 800 credit score. THERE ARE NO CONVENTIONAL MTGES AVAILABLE. At all. Right now.
Doc have you seen these reset charts ? reset graph
What means recovery set-up.
I have previously predicted that we would return to inflation-adjusted 1997 pricing on RE in general. Now I'm thinking that I was excessively optimistic.
sm_landlord | 01.03.09 - 10:03 pm | #
We're of the same mind there.
Yeah, I've seen those charts. You can't fight the Fed. Remember the first rule. They are going to do everything possible to clear inventory. If it means 6-8% inflation, nationalizing banks, etc, etc., it's gonna happen!
Lookit the option arms. Sheesh. Am familiar with the chart, but gosh, put it out of my mind, maybe because I didn't close any; the worst is yet to come.
lawyerliz writes:
What means recovery set-up.
over half way
You can't forced scared unemployed people to spend money . Who is going to start buying ?Everyone I know is scared of getting let go.
The problem with death calls for the dollar is that the anfglo world and ECB will align if necessary to prevent too much of a gutting of the old Atlantic alliance. no doubt stocks go up as the rush of money looks for its next stop. Likley a blow off the top in the equities> will be a tell to see how the dollar responds as equities rise? Also what happens to the appetite for US gov;t debt as the auctions get rolling? Something has to give it is juts a matter of time. My guess is the Fed and the Obama folk will eventually conclude the dollar isn't worth saving. The trick for BErnanke and Obama is to keep saying they support the dollar as it slowly belleds away. Win the battle before it is fought. Chian and JApan hare onto it already. When the bomb comes it is going to be epic.
Doc at the Radar Station writes: You can't fight the Fed.
Even the Fed cannot force people to borrow and buy houses. What do you think will be the consumer confidence and the unemployment with 6-8% inflation?
landlord-
What are these "codes" and "covenants" you speak of?
A coupla 2x4s, some old blue tarp, a few nails, perhaps throw a chain winch over an old tree limb w/ a V-8 dangling off it...
Fix ya right up!
inventory?
Doc at the Radar Station
So, we have trillions in debt and you are woried about inventories?
Lets focus on the obvious - a race to the bottom for devaluation (real and nominal) both to stimulate and salvage the various country balance sheets.
lawyerliz writes:
"and obviously rich people."
Out here in Cali, the rich are getting their police coverage cut. Only one patrol car for all of Pacific Palisades. Only 275 police for all of West Los Angeles.
Santa Monica hasn't cut back yet. We still have something like 260 sworn officers for the roughly 15 square miles of the city. But I don't know how long that will last.
Back in the early 1990s, this area was covered by what seemed like hundreds of private police staff, and I expect that to happen again as time passes. In the 80s and early 90s, it seemed like there was a private security car on every other street corner. More recently, SM has very responsive police presence; they even show up and thoroughly document burglaries. Not much on rounding up the suspects, however.
LL, I'm sorry about your mom. Short of a protected enclave, I don't think you'll see much better protection. But the cops may catch the perp eventually, probably after some other offense.
I'm really worried about my mom. She is in an unprotected (and unprotectable) area, but does not want to relocate. About all I can do at this point is to try to make her a less attractive target, and add a little security with alarms and such.
You can't forced scared unemployed people to spend money .
True. But, there are a lot more employed people than unemployed people (even during the depression 3:1), who have saved up a lot of cash that isn't earning them anything and that inflation will eat away IF THEY don't get into a HOUSE NOW at a fixed below inflation rate mortgage...
Will the fed force my son to move into a house of his own, and then hold a gun to his head to make him pay for it.
Well, they might try, but frankly it's impractical.
People who are tied to the land are officially known as "serfs". Usually, they are farmers.
City people forced to do stuff for other people and not leave are called "slaves".
inflation is going to be max destructive this time as the fed seeks to inflate while holding rates low and the wage arbitrage continues to bite. This collapse is going to be epic.
Regarding option arm resets, it could go a couple of ways. I've heard it argued that because of declining rates, the resets might not be as problematic as a quick glance at the charts would indicate.
On the flip side, if unemployment continues to climb, it doesn't make much difference if the reset drops the rate to 2%; if the mortgage holder is unemployed, he's toast.
bobn,
IMHO, one big difference this time around is that the more expensive markets will get less so relative to other markets. The disconnect between incomes and prices was primarily due to accumulated equity used for trading up, and that's being wiped out.
These new holes you see dug for new construction? This money was in the pipeline long ago. This is big money. Maybe in the 'new economy' it will be money lost, but they will push it to the last dollar. And just perhaps it will pull us through, at least as far as big-time construction is concerned. Time will tell.
I'm really worried about my mom. She is in an unprotected (and unprotectable) area, but does not want to relocate. About all I can do at this point is to try to make her a less attractive target, and add a little security with alarms and such.
sm_landlord | 01.03.09 - 10:54 pm | #
Would she consider a nice big dog? Beats almost any home security system hands down.
Yep, I begged her to just think about things. Was afraid she'd be sick in the house and nobody would notice for a day or 2. Didn't expect mugging.
lawyerliz writes:
You can't get a mortgage in South Fla right now.
who needs a mortgage when you can write a check for full asking in many parts of Florida?
Not quite yet.
Another year at least.
Except in Cobra's area, the INNNER Circle of DOOM.
Doc,
I'll take inflation over housing price deflation any day. Until housing hits bottom I wouldn't buy at zero percent.
Resets should be worse because of house prices have drop . Unless banks are willing to do exotic loans again(Ninja ect) a lot of theses resets will default (a lot will walk away). Most people who bought balloons because they did not ever make enough to afford the house with a normal fix note. If you think CEO's know what's going on ?Why would Bob Toll want to sell 3 million shares within the next 12 months if housing was near bottom? As far as fighting the Fed they have lost control unless you think they did this on purpose to kill the dollar?
Can someone explain how this "inflation" is going to do anything for average joe? One either has to assume it reinflates thier houses and the home equity tap opens - not happening (Chase requires 60% LTV in some areas) or wages are going to spiral up - not happening. So inflation will come and if anything it will spiral into commodities and then the food and will end up contirbuting to a horrid devaluation. The devaluation is coming whether it is in the dollar or simply the things you need start to rise in cost. Anyone holding out hope that the "good" inflation of old is coming back is totally delusional. Stocks may go up for a bit but they will eventually collapse as fundamentals chase them dow
"I'm really worried about my mom. She is in an unprotected (and unprotectable) area, but does not want to relocate."
i got my mom a dog for just that reason...a 70lb shepherd mix. Not that alarms and such aren't useful, but a good sized dog with a protective instinct and a strong bark is a deterrent, at least.
And of course, there's companionship.
Liz sorry to hear about your MOM . I afraid thing will get worse as unemployment goes higher .
Comrade Bear (tj & the bear) - I got two Roties three years ago. Very nice and friendly...However a "Gas Meter Repair Man" showed up one day to service the gas meters. He went around to the back yard and tried to look busy. A few moments later, I went outside with Bernie and Betsy to see his progress...the dogs were not amuzed to see a person in thier yard. They were well behaved but the "Repair" person visibly wet his pants.
I called the gas company - there were no repairs scheduled and never heard of this repair person...
I vote on more watch dogs.
I'll take inflation over housing price deflation any day. Until housing hits bottom I wouldn't buy at zero percent.
-Comrade Bear (tj & the bear)
I hear ya. But, inflation will taper off the house price declines and get people focused on just how long the interest subsidy is gonnnnnna last....
@lawyerliz
Liz - sorry to hear about your mother's case being pushed to the side by the Baltimore Police.
Maybe sometime in the future, when you are far enough removed from your current situation to be interested ... pick up The Wire on DVD from the video store. Best television show ever created ... and you'll get to a pretty riveting view of the Baltimore Police and the City itself.
My mom could never have taken care of a huge dog in a small Balto townhouse with a patio sized "back yard".
She in now with us and enamoured already with one of our cats.
TJ and LL;
I'm thinking an alarm with a panic button. Unfortunately she would not accept a big dog. I wasn't worried about a mugging either until the neighbor's house got cleaned out during daylight hours. Unfortunately the neighborhood cannot be be gated, they have already tried that and the city vetoed it. I guess the next step is to get the neighbors to pony up for private police.
inflation has to impact interest rates it is a mathmatical certaintly As rates go up prices compress. Inflation is not the anwser but it is the only thing they know. And those wishing for it are let me guess leveraged to the hilt
btw - all three of us have had 'buot 100 hours of trianing time...Betsy can do rolls on the driveway and Bernie will jump over her...very good dogs! On a split second they will fall in beside me and do what I ask.
Can someone explain how this "inflation" is going to do anything for average joe?
Watch for possible gasoline rationing to put an upside constraint on consumer expenditures for imported necessities.
lawyerliz - get a fox terrier....they are good in apartments and in smaller places and are excellent watch dogs...and, they are small and fiendly
That other cop show, umm, don't remember the name was set in Balto. They wanted to use my mom's house as a set, as I recall. She said no, too much trouble.
I repeat, this is not a "bad area". There is new housing nearby. A lot of people spent money redoing the facades in recent years and doing stuff like putting wood patios on the roof, and a few even put part of a 3rd floor on.
fried,
Good for you! I doubt I'll ever be without a shepherd in the house (and mine's a 100lb girl).
Every time I hear of a single woman waking up to find some strange guy in her bedroom I think "not if she had a big dog".
Same goes for those "armed security" companies; by the time they get there the damage has already been done. OTOH, a dog will often warn before the break-in, and if the perp is still stupid enough to continue he would have to go through that dog to get at anything or anyone.
Someone posted a story recently about two pit bulls that killed a visiting grandfather, who happened to go out into the backyard to have a smoke. Who says smoking doesn't kill.
I spent the week in London. The United Kingdom is apparently having a going out of business sale. Got a pair of $175 Jimmy Choos for the girlfriend.
Fiendly???
Anyway, she is here, and I don't like dogs. When I was a really little kid, they had a fox terrier named. . .Foxy!! I don't remember the dog.
OTOH, a dog will often warn before the break-in
Comrade Bear (tj & the bear)
Agreed. Deterence is best.
everyone keeps saying inflation. I have yet to see anywhere an explanation of how inflation helpos this situation? Please someone lay it out how inflation helps anything - inlcude impact on wages, rates, expectations please - what the gov is going to unleash inflation and then what house prices are going to skyrocket and the banks already bankrupt are goign to buy into it hook line and sinker. THis as the gov rites down mortgage principle.
the whole argument is embarrasingly stupid
Doc,
Just my opinion, but I think interest rates will blow out before housing hits bottom.
fox terriers are supposed to be the most family oriented dogs...dumb but friendly
My daughter has a pair of Siamese attack cats who would howl you to death.
. . .
Well, I lied, they are chicken cats, but they do howl.
Doc at the Radar Station writes:
Can someone explain how this "inflation" is going to do anything for average joe?
Watch for possible gasoline rationing to put an upside constraint on consumer expenditures for imported necessities.
Doc at the Radar Station | 01.03.09 - 11:09 pm | # I don't put anything passed this government. Except rationing gas will make everyone spend even less. Most people will be scared to spend . I just hope they don't try and corral us with bird flu. Then gas us....
Doc,
Extending on that thought...
* First leg down in housing due to bubble burst -- still in progress
* Second leg down due to unemployment -- just getting underway
* Third leg down due to skyrocketing long rates -- ???
Just my opinion, but I think interest rates will blow out before housing hits bottom.
Not if they are subsidized.
Agreed, comrade Bear.
It is possible that there has been so much money destruction that a trillion dollars stimulous is not nearly enuf.
Third leg down due to skyrocketing long rates -- ???
Comrade Bear (tj & the bear)
Interesting please elaborate...
Dogs are mostly useless.
GF had an australian shepard, very aggressive dog, who basically shit himself during a robbery and was apologetic later.
Not helpful.
Except rationing gas will make everyone spend even less.
Rationing will force increased savings.
Doc, the amounts of money are simply stupendous to subsidize the amount necessary. they could subsidize now and keep people in their homes by paying people's delinquent mtg payments. . . Not happening.
Not if they are subsidized.
Doc at the Radar Station | 01.03.09 - 11:17 pm | #
Well, I'm expecting that long rates will blow out because of a flight out of Treasuries.
well, Ive got a two legged dog that attacks like a snake if you come near me...
its true, she was born with only two back legs.....I am a man who cares for wounded animals.
Maybe the stink drove the robber away.
Well, I'm expecting that long rates will blow out because of a flight out of Treasuries.
Comrade Bear (tj & the bear)
Ooops. I thought you meant mortgage rates.
"Rationing will force increased savings."
--Doc at the Radar Station
BS. Not at all. Rationing forces increased spending, it's just below the radar, so to speak.
When necessities are rationed, they become more expensive.
It is possible that there has been so much money destruction that a trillion dollars stimulous is not nearly enuf.
lawyerliz | 01.03.09 - 11:17 pm | #
No way it can be. As someone noted a while back, it's "Weekend at Bernies".
rates are not going anywhere but down, just ask Bernanke and Paulson.
The chain reaction to egt inflation to work would be ass follows: fed prints money, banks lebnd, people take money and deploy into more shopping malls and exceess capacity (stranded) [this as rates fall and likley materials begin to rise] excess capacity hires people who get paid nominal to stagnant wages but the amount of money gets forced into equity or house or other bubble. banks comply and begin to lend on overinflated assets. J6P pulls money out becasue bank is so stupid they will do exactly what got us here. Fed finds itself contemplating printing more money but this time they have chaoin gangs digging holes and another following to fill them in. Diet now consits of rice and puddle water.
The only thing inflation accomplishes is to piss off China and Japan. MAke no mistake the USG is going to default and they will tank the dollar before that as it looks better and can be blamced on fundamentals.
London Banker has it right only invest in responsible countries. Germany looks the best of the worst at the moment,
S, planned inflation is designed to lower the real value of debts. If we had a large inflation, it would improve the lot of people who borrowed, and worsen the lot of people who saved. Since the people who borrowed a lot (mostly to buy assets and then reap profits from selling them for more than the debt+interest) are now complaining the loudest, the inflation is for their benefit.
I just don't see people borrowing. I just don't see it. Even the most ridiculously overspending types I know have finally got it.
When necessities are rationed, they become more expensive.
sm_landlord
Not if they are imported.
Dogs are mostly useless.
sm_landlord | 01.03.09 - 11:18 pm | #
Most dogs are strictly for companionship, but not shepherds and a few others. Shepherds instinctively know they have jobs, and are preferred the world over for those jobs.
S, I made my prior post before I saw your last comments about inflation. I agree wholeheartedly about investing in the currency of a country that hates inflation.
Germany is one such country, but its currency is shared with France and Italy and Britain and other countries with a miserable inflation history. My personal favorite is the Yen. It has gone up a lot since I moved a lot of my own money into it, so buying more is not quite such a slam-dunk now, but it is an interesting inflation hedge.
rattioning will lead to serious unrest. That is why the US War college just published a paper on using active duty troops to qwell violence after US got rights to base troops here.
Look at the US warfighting strategy to see what their gameplan will be. IT will be a bank holifday combined with a internet holiday. Command and control.
Got to love the economists like that fool at Economist View who everytimg an ammo clip is expensed claim to have an unlimted supply. Soon Bernanke will be spitting at the market
lawyerliz writes:
I just don't see people borrowing. I just don't see it. Even the most ridiculously overspending types I know have finally got it.
they think they have it, but all they are really doing is selling the shit they dont need and looking forward to two weeks in Cancun in a few weeks.
Liz, "people" are not monolithic. Some will borrow. If they build it, they will come.
"Not if they are imported."
--Doc at the Radar Station
That is frankly ridiculous. If necessities are imported and scarce, they become even more expensive, because imports are the first thing to stop. And how many imports are necessities?
Germany cannot hate inflation as a member of the Euro.
They will embrace it until they dont. And by they, I mean somebody in Club Med, stepping out of the Euro.
If necessities are imported and scarce...
I'm talking about a scenario where we restrict consumption and demand for imported oil by rationing gasoline. Reducing demand for imported oil isn't going to make oil more expensive.
Ooops. I thought you meant mortgage rates.
Doc at the Radar Station | 01.03.09 - 11:20 pm | #
I did. When people flee Treasuries then there'll be no subsidy, just loads of inflation and risk. Mortgage rates will skyrocket along with everything else.
Sorry for the confusion.
if you have a lot of debt in your house or on your credit xard and most americans arn;t that invested in the stock market, the only inflation that will save them is wage or house inflation, coirrect. Neither are happening. So again I ask how is printing money going to help this problem. The short anwser is it does not. I understand the simplistic arguments that inflation reduces real favlue of debt. But it only does so if you see that reflected in interest rates (higher return which exacerbates the pricing doewnsife of houses) or wage increases. The Fed is spinning a deathly cocktail to help itself not you or any householder.
Doc--Hunh???
I've had enough.
Nitey nite.
Liz, if inflation and low interest rates were to take hold as the Fed hopes and plans, then it would change the game. Saving and holding money would then be 'taxed', whereas borrowing and buying assets would be rewarded, especially if loans are widely available with little or no money down, as the Fed will arrange for.
Is it nuts? I think so, but who am I compared to Mr Bernanke and Mr Krugman and others?
imports can get more expensive by just tanking the dollar. Argues for being long oil and metal. Look at what led the rally on Friday - Day 1 people bought energy and metal. The Fed is going to decapitiate itself.
Saving and holding money would then be 'taxed', whereas borrowing and buying assets would be rewarded, especially if loans are widely available with little or no money down
patientrenter | 01.03.09 - 11:32 pm | #
Been there, done that. Savings rate went negative, toxic lending flourished. Look where it got us.
Pushing on a string.
When people flee Treasuries then there'll be no subsidy, just loads of inflation and risk.
That depends on there being something to "flee" to that has lesser risk. What might that be?
Comrade Bear (tj & the bear) writes
Totally agree. The Fed and all its Keynesian lackeys will find themselves miffed when printing money finds its way into something that will create a totally new problem.
When doers an auction get canceled or fail?
"I'm talking about a scenario where we restrict consumption and demand for imported oil by rationing gasoline. Reducing demand for imported oil isn't going to make oil more expensive."
---Doc at the Radar Station
Different discussion. But oil doesn't get get cheaper because import demand is reduced. It actually gets more expensive, because cheap oil is not produced in this country. You were talking about the U.S., right?
Reducing demand for imported oil make oil more expensive, because domestic oil is more expensive than imported oil. Otherwise there would be no imported oil.
That depends on there being something to "flee" to that has lesser risk. What might that be?
The 10,000,000 question...
Look for gates to go up on 401K moeny as more moeny starts to leeak out...
Comrade Bear,
If I can get a non-money-down non-recourse loan to buy a $500,000 property, and pay just 5% fixed interest, then why wouldn't I give it a spin?
Maybe some folks will choose not to take that free ride, but many will, and that can re-ignite the asset inflation.
Is this good? I don't think so but, as I said, Mr Bernanke and Mr Krugman and practically the entire world wants it.
Otherwise there would be no imported oil.
There's more reason for imported oil than just that. Dwindling U.S. reserves also has something to do with it. We peaked in the 70's, and have been on the downslope ever since.
most people will not move to yen or euro or other so the fed knows that it has captured the lions share of people if it wants to devalue
We will get a greatly devalued dollar one way or another, sooner or later, faster or slower. That will mean great inflation in imported goods, especially oil, which is a necessity. Rationing isn't a given, but it would prevent the higher gasoline prices from asphyxiating personal savings and domestic investment.
it wssn;t the 500K property at 5% that ignited the bubble it was the 500K 5% property doubling to $1M and the HE extraction. That is NOT happening again. Just not. SO sure you get a "cheap" asset until inflation kicks in and that rate in 5 years goes back to 8%. Then what. Your capital loss will be epic for the next buyer to have the same payment. Do the math. Money for nothing gets you nothing.
Doc, so long as speculation remains in play, there's no guarantee, even if you ration. The price would need to be fixed and speculation would have to be controlled, or prohibited.
That depends on there being something to "flee" to that has lesser risk. What might that be?
Doc at the Radar Station | 01.03.09 - 11:35 pm | #
Hard assets, foreign repatriation; could be simply herd mentality getting out the door.
It's taken $2B a day in borrowing just to sustain our deficits in good times, and now we're talking about financing well over a trillion dollar deficit next year? That means more borrowing, not less, and that with our foreign financiers not having loads of export money to recycle back our direction. Supply can easily overwhelm demand and the floodgates just blow the hell off.
I'd rather not touch the inflation issue since real rates can't be determined as there is no commonly accepted "base" year. Anyway, one of my oft cited pet peeves.
However, I will say that broad based increases in prices generally affect non-durables first and move their way up the food chain to durables.
The most durable assets are CRE and we've seen the end there. Now, we'll drop back down the ladder to soft commodities and utilties. This "inflation" will be manifested by increasing prices, lower per unit quantities, lower quality/ unit or some mix therein based on the market segment and turnover.
If you can accept that as a reasonable case for historical trends, a mcmansion that sold for $500k two years ago won't see that price again for 10-12 years, at least.
Why? Commodities and utilites will keep eating up the incremental increases in money supply and they are already the base producers of velocity (turnover).
But, if you're afraid of being "priced out forever" of a home due to some type of durable good inflation, by all means, swing for the fences.
However, if you want to buy a strip mall or power center at 50c/$ (replacement cost), restructure the existing loan, and lose money on negative carry for 3 years...you might be onto something.
If you can stomach it.
he Federal Reserve has embarked on a campaign of unsupervised industrial policy to end the country's financial crisis, a move that could undermine its independence, a former top U.S. official said on Saturday.
John Taylor, who was under secretary of treasury for international affairs from 2001 to 2005, said the explosive growth of the Fed's balance sheet since September was "unbelievable."
Fed has abandoned monetary policy, critic says
| Quotes
| Company News
| Reuters
Surprised? I'm surprised former officials are starting to speak out. Will it make any difference? Doubtful.
S,
You and I are in agreement that inflating asset bubbles is not healthy or sustainable in the long run.
What I am saying is that the govt has the power and the will to re-inflate. I gave as an example the provision of no-money-down non-recourse loans. Do you disagree?
(From the borrower's POV, borrowing like this is really just being given a free call option on the asset being purchased with the loan, so any future capital losses are no concern of the borrower - he just walks if that happens, and gives the key to the FDIC or the relevant govt agency that provided the guarantees.)
US Government Immorality Will Lead to Bankruptcy from David Walker The Comp comptroller of the USA YouTube - US Government Immorality Will Lead to Bankruptcy
If I can get a non-money-down non-recourse loan to buy a $500,000 property, and pay just 5% fixed interest, then why wouldn't I give it a spin?
patientrenter | 01.03.09 - 11:39 pm | #
Not me, because I know that's really a $250K property and it's not worth the credit hit when it's inevitably time to walk away.
Regardless, isn't that what got us here? I think everyone that wanted to try that already did.
The move in oil from $150 to $40 shouldn't give people (especially economists) a sense of security.
The ability of a high volume commodity to change price velocity that quickly should frighten the snot out of them.
It does me.
"There's more reason for imported oil than just that. Dwindling U.S. reserves also has something to do with it. We peaked in the 70's, and have been on the downslope ever since."
--Morocco Bama
Yes, and that's why it's pointless to have a discussion about reducing imports.
Any imposed reduction in oil consumption will result in increased prices. Prices will rise to balance supply vs demand. Supply will include imports. Demand will support prices, because people will buy what they need to continue commerce. You can look at Europe to see this.
People and companies will pay whatever it takes to continue operating their businesses. You can cut supply all you want, and prices will rise until only the necessary supply is consumed. Domestic supply cannot fulfill that demand, so imports will continue. At whatever price, until the collapse. Then oil will get get cheap. Oh, wait, that already happened.
Me too, Hong Konger.
It does me.
hong konger | 01.03.09 - 11:50 pm | #
It should. It shows a critical commodity riding the knife edge of supply/demand balance, and the future doesn't look good for the supply side.
patientrenter writes
not disagreeing that is what govt wants. For sure.
As for the 500K house a rational person only does it if the payment is less than an equvilant rent. Why? On a no money down you are essentially renting for first five years no? So if you are not in for long haul and price is not going up you would only do it if you planned a 30 year campsite. Otherwise it maks no sense when you check the amotization chart. Iggnoring taxes here for argument sake, but we are not talking jumbos here. Yet.
I just find the idea that you can stimulate the same behavior that got us here to be nieve at best.
If there is a bubble it will be in something that the banks will benefit most by - commodity trading etc..this bubble creation is about sucking in capital from overseas and recapitalizing our banks at thier expense. WThe FCBs must knbow this and will eventually pull the carpet. Check out GCC moving to a single currency. How long will it be before their is a mad rush for gold or a global agreement hatched that moves the world off the dollar.
Comrade Bear,
We'll just have to disagree. I think lots of people will be attracted to the idea of buying with none of their own money, at very low fixed rates, for 30% or so less than the prices they might have paid 2 years ago.
If I had no assets and no sense of responsibility, I'd be interested in doing this as soon as the cost, net of taxes, went below my rent. My guess is that covers most of the population.
Yes, I think it's ridiculous, but it is the consensus goal for our politicians, economists, and most homeowners.
RE dogs
Reformed burglers say that any dog is a deterent-they alert the owner. We have several, one advantage is that the younger dogs always compensate for the reduced hearing acuity and alertness in the older ones. In over 20 yeary we have never been burglarized. I work in the music business; my sound systems and related equipment are worth about three times what my house is worth. Just because you're paranoid....
poster formerly known as nitpi(Unrated) writes:
\tRegarding option arm resets, it could go a couple of ways. I've heard it argued that because of declining rates, the resets might not be as problematic as a quick glance at the charts would indicate.
poster formerly known as nitpi | 01.03.09 - 10:57 pm | #
Yes, but the Option ARM loans also recast, which is to go from negative amortization at some lower rate to fully amortizing at some higher rate. There is, of course, this UberNerd post
by Tanta that explains this in the usual excruciating detail.
These loans don't just reset and increase. They also recast and explode.
sm_landlord, I'm not disagreeing with you. I was just pointing out that we import for a number of reasons, cost of extraction being just one. Availability of reserves to extract is another.
Decreased supply is an inevitability, though, so one way, or another, we're going to get rationing.
Baltimore Fire, Police Staff Lose $3.5 Million in Pension Money to Madoff Scam
Julie Bykowicz
Baltimore Sun
January 3, 2009
Baltimore police and fire employees lost about $3.5 million in pension money invested in a fund with ties to disgraced money manager Bernard L. Madoff.
* A d v e r t i s e m e n t
* efoods
Madoffs alleged $50 billion Ponzi scheme has dented public funds and nonprofits across the country, with new victims discovered daily. Also affecting Maryland is the demise of a justice foundation that routinely gave millions to organizations such as the Annie E. Casey Foundation and Baltimores Job Opportunities Task Force. The JEHT Foundation announced days after Madoff was arrested that it had lost everything and would close at the end of this month. JEHT was slated to give a consortium of Maryland crime groups, including the Baltimore Safe & Sound Campaign, $500,000 for crime fighting strategies, said Thomasina Hiers, assistant secretary of the state Department of Public Safety and Correctional Services. Hiers did not describe the project or say whether it could continue.
Madoff, who is on home detention after his Dec. 11 arrest in New York, provided a catalog of assets to the U.S. Securities and Exchange Commission on New Years Eve. Regulators are working to untangle the web of affected investors.
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Citizen Jacked - very good link, thanks
I guess we'll have to see if Obama will play by the book or will feel empowered to change the rules (e.g., the powers of the Fed Reserve)
If I had no assets and no sense of responsibility, I'd be interested in doing this as soon as the cost, net of taxes, went below my rent.
patientrenter | 01.03.09 - 11:55 pm | #
Ah, but there's the rub. By the time costs go below rent it's too late.
patientrenter --
indenturing people to an overvalued house is serfdom. If ever there were a case of the gov preying on people this policy is it. They will try and incent people to stay in an overvalued place and pay so to keep bank loan current and it will mean your house is not marked fully to market even in a principal shave.
Saw an interesting Ad on teevee. Hyundai acknowledging escalating unemployment & offering buyers 1 year to give any car back if buyer loses their job. Never seen anything like it.
When unmenployment is rising very few are inclined to take on any payments. Velocity is heading south.
S,
I am not sure you see the picture I am trying to paint. I apologize for not being clearer.
If the govt lowers long-term fixed mortgage rates to a very low rate, let's say 4%, and also supplies loans that require no money down, and also succeeds at re-igniting inflation, then the people who bought property at the very low rates will do very nicely. It's the people who suppy yhe money for the loans who will lose.
Once again, I am not advocating this, I am just pointing out that it can be done for several years, and it is what appears to be the goal of the people who run our economy. It would be very popular with homeowners who, as I am sure you know, are the majority of voters.
patientrenter,
Again, been there done that.
People were able to buy with stated income, low FICO, interest-only purchase loans that were already no recourse. To boot, they were convinced home values would always rise. Everyone that wanted to buy already did!
Now those people are already out (and have trashed credit) or are still in and underwater.
Who the hell is left?
C Bear,
Ownership costs can go below rent in one of 2 ways - lower home prices, or lower interest rates and delayed principal repayments. Our economy's managers don't want home prices to get that low, hence their push to lower mortgage rates and ease up on lending requirements. If you lower rates enough, and allow enough delays in principal payments, you can always ensure that ownership costs go below rent, regardless of how overpriced the home is.
I don't think it's sustainable over the long run, but Mr Bernanke and others would disagree, apparently. And they are the ones making the decisions!
The problem with using equivalent cost to rent comparisons is the assumption that rents will either stay the same or increase. Try any of the rent/own analyses with a deflationary bent and suddenly house prices take another stair step down.
patientrenter,
We'll have to agree to disagree. Interest rates can't cover the distance alone, and you won't see delayed principal without recourse.
The only way you could increase the buyer pool is to convert renters by essentially subsidizing the purchases (e.g., government pays half), and that just won't happen. Why would anyone that already bought a home on their own not dump theirs simply to buy another with the government coughing up half?
I don't care what the government wants, they cannot defy gravity.
The problem with using equivalent cost to rent comparisons is the assumption that rents will either stay the same or increase.
Rob Dawg | Homepage | 01.04.09 - 12:22 am | #
I was getting around to that.
C Bear,
Let's imagine for a moment that the Fed and the US Treasury had not stepped in, and asset prices were already a lot lower than they are now.
In this (imaginary free market) world, everyone would have been forced to confront the possibility that asset prices were not going to go back quickly to the levels they are still at today.
Now let's go back to reality. People still believe that current asset prices are, at worst, at their correct level. Many think they should be higher in the next few years.
In the real world, there are still many people who think current asset prices are the result of a temporary downturn, and they will increase to a naturally higher level after a few years, with a little help from a temporary stimulus to jolt them out of their current slump.
With this background, I think there are many people who would buy if there was no downside, because they would see some upside.
Interest rates can't cover the distance alone, and you won't see delayed principal without recourse.
Comrade Bear (tj & the bear) | 01.04.09 - 12:27 am | #
And I was getting to that.
0% mortgages don't address what is commonly called "the monthly nut." Taxes, heating, upkeep, on and on along with even a mere 1:1 repayment of principal just isn't enough. There is no cure for too high home prices except lower prices.
I must retire for the night. C Bear and Rob D and S, I am in an awkward spot: I appear to be arguing against your views of what is right, but in fact I agree with you on what is right and sustainable in the long run.
I am only saying that the important people nearly all disagree with us. And I tend to agree that they can create inflation and low mortgage rates and easy money, and that will change everything for another few years. It will have bad consequences, but they can do it, I think. And they have all but said that they are determined to do it.
I think there are many people who would buy
patientrenter | 01.04.09 - 12:30 am | #
Same argument people used years ago to suggest certain areas were immune from declines. People on the sidelines, the rich, foreigners, (rich foreigners), etc. Who are these people? Where are these people?? Why didn't they buy 4 years ago when there was no perceptible downside whatsoever?
People that would, did; the rest knew better (and still do). The government couldn't find enough people now if they threatened them at gunpoint.
And I tend to agree that they can create inflation and low mortgage rates and easy money
patientrenter | 01.04.09 - 12:36 am | #
The inflation won't show up in housing or wages, though. Goodnight!
Renter and Bear, you both make good points. Bear's argument is more pragmatic, IMO.
It's true we can't fight the FED renter, but the FED can't fight the world.
Nor can it adjust reality. It can provide incentives, but, that isn't the same thing. You seem to be leaning toward accepting their incentive, and there isn't anything wrong with that.
From a practical standpoint, though, commodity and utility producers are already in a position to raise prices, they already have a look on turnover velocity AND they have pricing power.
Gonna be hard to ex that out of anyone's buy/rent equations, in any case.
renter, if you've been patient a long time, go ahead. My personal belief is that more and more deals will open up on better quality houses at the price you are willing to pay now, but...if you've had enough, don't keep punishing yourself.
My sis just bought a house for 50% off "retail" (about 45% of replacement) and I couldn't be happier for her (partly because I couldn't hold her back any longer;)).
Congrats to your sister, Hong Konger!
Don't know where she's at, but there's substantial portions of the country where buying already runs competitive to renting. If she's in it for the long term and loves the place then she'll be fine.
I really must get some sleep. But I can't resist responding to your last comment, Rob Dawg.
If interest rates were reduced to 1%, and principal repayments did not begin for 5 years, then it really would be possible for many people to buy very expensive homes, and keep them for 5 years. A $1 million home might have expenses of $30,000 deductible property tax and interest, and another $10,000 for other expenses. There are a few people earning $120,000 who would go for that.
It is not a good idea, but it is POSSIBLE to distort economic prices of significant commodities over long periods through vigorous govt action.
patientrenter,
France and Italy share the Euro with Germany, yes. Britain, no. Membership of the European community and of the Eurozone are not the same thing.
Acually I wouldn't be altogether surprised if the current problems in the UK finish up being the catalyst for them to join the Eurozone.
Thanks Bear. Yep, my only caveat to acquiescing was that she had to be prepared for at 15 years in that locale and no equity withdrawals while she was there.
She promised she understood and bounced off excitedly to the closing.
...at least 15 years in that locale...
Gotta catch some winks.
There are a few people earning $120,000 who would go for that.
patientrenter | 01.04.09 - 12:42 am | #
Realtors, investment bankers, mortgage brokers... OOPS! That was last year. /snark
How many $120K people that want homes don't already have one?
Doesn't matter anyway; the numbers just aren't there. There simply aren't enough non-owners wannabes with the means available, period.
I am only saying that the important people nearly all disagree with us.
patientrenter | 01.04.09 - 12:36 am | #
I consider the collective power of the CR crew to be far more influential than it might appear. I can tell you without breaking confidences that there are people here who have the ears of higher officials. Don't mistake a calm surface for lack of undercurrents.
Aargh! Thanks for the kind words, Hong Konger, but I am not about to buy a home!
That's the trouble with communicating over the wire, when you're not really good at expressing your tone in your writing. (I am not.)
I am absolutely opposed to inflation in general, and to price supports for housing in particular. I hope that some external economic event trips up the Fed on its way to inflation. I simply refuse to overpay for a home, regardless of what the Fed does to entice me.
I just don't see my views being shared by most powerful people.
G'night all!
Rob Dawg(Good) writes:
\tI consider the collective power of the CR crew to be far more influential than it might appear. I can tell you without breaking confidences that there are people here who have the ears of higher officials.
For instance, sometimes my wife actually listens to me...
patientrenter,
You're absolutely right about attitudes and intentions. We've debated price support tactics ad nauseum the past few years (here, and before at HBB) and there's just too many unintended side effects that undercut the objective.
Again, goodnite!
For instance, sometimes my wife actually listens to me...
metabear | 01.04.09 - 12:52 am | #
Only when she wants something, right?
Re: dogs
We had a German shepherd - one night he started a low long growl. It didn't quite get a up to a bark. Couldn't figure out what was bothering him and he wouldn't stop. Something was making him very unhappy but not enough to take him downstairs and let him out. Next morning, turned out some one had tried to break into the house next door. Good dog.
Dow,
I work rescue, and I can't tell you how many stories I have of dogs saving the day. Here's one:
You mention an attempted break-in next door? One of the dogs we placed woke a family up because the house next door was on fire -- and those inside the blazing home were still asleep. They all got out safely, and came and got their own dog.
Dawg, I am diggin' you more and more -
ozajh,
Yes, UK is not in Eurozone. Didn't intend to imply it was. My point is that Euro is not as strong as a bulwark against inflation as Germany, and the UK (GBP) is weak also. But Yen is strong. Japanese went through a lot of pain for the last 15 years, and a lot of that was to protect the value of the Yen.
Dryfly's jabs at Japan's mercantilism notwithstanding, I don't think Japan's politicians are prepared to undermine the conservatively invested savings of one of the most aged populations on the planet. Japan wants a currency that's not ridiculously overvalued, to preserve exports, but neither do they want their retirees to lose out to insidious inflation.
I think Japan would be very happy to have a currency with a value 10-20% below PPP, but that shows 0-1% loss of value to inflation over the long run.
001, be sure to check out his website.
I don't convey my tone in words either renter. Not many of us do.
One of the worst things we can do is let someone sell us on some notion that co-opts our common sense; whatever power they claim.
Best of luck as you try to find a middle path.
konger - you come through loud and clear
I have a friend who is planning to buy in february in Santa Rosa Ca.He and his Fiancee' both work in the medical field,have good incomes and excellent credit.They plan to stay at least 15 years and will be putting 20% down.For them,in that market,OK.
And here comes Germany:
... Hambrecht (BASF) also warned about a recession scarcely imaginable. "The Brunt of the downturn is powerful, "he said. The situation is extremely distressing. "Even if many citizens still do not acknowledge it: We need to prepare for hard times. It will be about sweat and tears. "Germany is in a deep recession, which in its magnitude was difficult to imagine.
Tom Stone - they will love it, until they go to the mall one day and leave their footprints in the asphalt. But access to Jenner, north and south, is awesome.
Error - washingtonpost.com
WAPO
Heather Locklear gets probation in DUI case
(May she have a better 2009.)
I have a friend who is planning to buy in february in Santa Rosa Ca
Tom Stone | 01.04.09 - 1:07 am | #
I haven't kept up with Santa Rosa. I lived in West county until 2002. Have prices dropped so much there that you actually think that the bottom is near? That would be quite surprising to me.
It doesn't matter whether or not the bottom is near (unless you want to save every dollar possible). What matters is where you want to live, and how much you're willing to pay for it. I hope that's not too simplistic.
Love this stuff:
California Employees fight each other as budget crisis deepens
p.s.: Should've credited Mish for that link!
What matters is where you want to live, and how much you're willing to pay for it. I hope that's not too simplistic.
001 | 01.04.09 - 1:25 am | #
I personally consider California extremely overpriced still and the Bay Area in particular. I am loosely including Santa Rosa in the Bay Area. Santa Rosa benefited from extremely overpriced Marin RE and IMO is likely to suffer quite a bit. It also had lots of development with relatively little local job support.
I personally consider California extremely overpriced still and the Bay Area in particular.
RE | 01.04.09 - 1:30 am | #
AMEN!!!
Excellent thread, except for the crap about dogs. For every Lassie/home security moment, there are thousands of piles of crap, guests annoyed by the allergies and disgusted by the hair and droll, kennel coughs and vet bills.
Oddly enough, no mention of gold, which is the ultimate answer to all of the above questions.
There's no consequence quite like an unintended one, and what form of inflation is most maddeningly useless to the string-pushing debt-pushers at the fed? Gold, of course. And a little bit of DXO sure didn't hurt this week.
To paraphrase John D., for investors both small and large, gold is "an angel of mercy, reaching down from the sky, and saying Get into the ark...We'll take all the risks.' The TARP could never be that anymore than I could be an NFL linebacker.
When I was a kid, my dad bought a 3/1 house in Mountain View (Emily Dr) for 13,000. He sold it a few years later for 16,000 and thought he made a killing. No telling what that house is going for today, but I bet it far exceeds inflation. So, yes, housing is surely overpriced, especially in the BA, and for most of CA, for that matter, no doubt about it. But where else would you rather live? I am CA, born and bred, and I can tell you I would be living there still, if I could afford it.
bgates,
To each his own, but a good dog beats a kid by a country mile when measured by those standards.
"but a good dog"
the urge to keep one's DNA on the planet is indeed a strange and potentially costly one. but at least one has the excuse of biology and a socially acceptable brand of narcissism.
here's a nice quote from an excellent NYT article out this morning which should appeal to the crew here:
"Jealousy and begrudgery are still alive and well in Ireland, and whoever eradicates them should be prime minister for life. Its part of the Irish psyche and it is the result of 800 years of being controlled by other people, of watching everything the master or landlord is doing.
But where else would you rather live? I am CA, born and bred, and I can tell you I would be living there still, if I could afford it.
001 | 01.04.09 - 1:44 am | #
I love CA, too but have lived in many places around the world. Each place has its own attractions. However, the BA is one of my favorites especially West Marin.
It is getting interesting on the trade front:
Here from the FT:
Western countries should close their markets to sales of Chinese trains because China's domestic market is closing to outside suppliers, says the head of one of the world's largest rolling stock builders.
In a Financial Times interview, Philippe Mellier, chief executive of Paris-based Alstom Transport, also claimed that Chinese companies were offering trains for export using technology derived from western suppliers. Such technology is usually supplied on condition it not be used outside China. ...
"especially West Marin."
...everything beautiful about the bay area combined with everything obnoxious about the bay area attitude and cost.
I haven't kept up with Santa Rosa. I lived in West county until 2002. Have prices dropped so much there that you actually think that the bottom is near? That would be quite surprising to me.
RE, I just posted NODs and Trustees Deeds for Sonoma. The numbers are back up, following California's failed law delaying the foreclosure process. And I do watch houses in Santa Rosa; the prices are falling fast. Much more trouble ahead.
"Jealousy and begrudgery are still alive and well in Ireland, and whoever eradicates them should be prime minister for life. Its part of the Irish psyche and it is the result of 800 years of being controlled by other people, of watching everything the master or landlord is doing.
bgates | 01.04.09 - 1:49 am | #
I loved that quote myself. I lived right across the street from the Ballsbridge development that Dunne was/is planning. Prices were out of this world. My flat, bought in 1986 for 36,000 Irish Punts ($50K USD?) was worth >$1,000,000 a couple of years ago. Now? Who knows? No property taxes, so who cares.
The most expensive house ever sold in Dublin was a few years ago for 60 odd million euros. They tore it down to rebuild. Hey, it was on Shrewsbury road, but still...
Born in Palo Alto, raised in Redwood City, and Mountain View, With stints in Eureka and McKinleyville, Point Arena, Anchor Bay, and Gualala. Extensive family there, to this day. My God, I love that place. It hurts me to hear it disparaged, although I can understand the criticism.
...everything beautiful about the bay area combined with everything obnoxious about the bay area attitude and cost.
bgates | 01.04.09 - 1:55 am | #
I wasn't talking about Bolinas....
Weep for the prudent savers :
Evans says Fed needs to mimic below-zero rates
Evans says Fed needs to mimic below-zero rates
| Reuters
Quantitative easing, a way to flood the banking system with large amounts of money, "is a way to mimic below-zero rates and provide support to the economy," he said.
Since the financial market crisis erupted, the Fed has created several new programs aimed at bypassing the traditional banking system and smashing through the credit-market logjam, including the direct purchase of mortgage-backed securities.
Even so, the U.S. jobless rate appears on pace to exceed 8 percent in 2009, from the most recent reading of 6.7 percent in November, Evans said.
"I wasn't talking about Bolinas"
i suppose marin co has marin city, much as SF has hunter's point... the exception that proves the rule?
I tuned in late, but what's not to understand about inflation? Looked at in terms only of real estate prices, it isn't a panacea. But if the root problem is importing too much crap and not exporting enough, inflation tends to solve that nicely, without the embarrassing anti-free-trade implications of tariffs. If the government has borrowed a bit too much from abroad, inflation solves that, too. A goodly slug of Dr. Inflation's elixir cures all!
S. was asking about its effect on expectations... Well, there could be a bit of a hangover, twitchiness or compulsive gambling.
Begrudgery is still alive and well in Ireland. So is old fashioned graft and corruption, like nothing you will ever see in the US. I kind of like it. A well placed "brown envelope" can make things happen, even for the ordinary person.
How about you post the source of your data on your charts instead of your advertisement?
Told an epileptic friend several years ago about seizure alert dogs, and she can now drive with the dog able to detect brain waves preceding an episode.
But the one I want is the inflation alert dog.
Rob Dawg, damn, you blew my cover.
Ot
Israels Worst Fears
Its U.S. ambassador says the big threat is that Iran has almost enough fuel for its first nuclear weapon.
Israel's Ambassador on How to Stop Iran | Newsweek World | Newsweek.com
Why are there people pining about inflation going into trillions of dollars of asset losses and the collapse of a credit bubble? Obama spending a trillion is going to add to the money supply enough to counteract all the layoffs at local government level?
The inability of fiscal stimulus to pull an economy out of a deflationary spiral, once it has entered one, has been proven by the Japan example. 20 years of ZIRP hasn't led to hyperinflation in Japan; why would it happen here? Look, say the new admin spends some money revamping our infrastructure. Better roads, public transportation, nice. And the money goes to roadbuilders, manufacturers, whatever. Are they going to take that money and expand capacity? Hire more people? Most likely not, they know it's a one-time stimulus. The money goes right to the bank or worse, to their vault. The money just doesn't move; it has no power. Will those in power try to stimulate more? Perhaps, but with falling tax revenues and rising debt service, they can't keep stimulating as much. Some people seem to go from here to the Zimbabwe scenario, but that would be suicidal at that point for those in power.
Anonymous: Weep for the prudent savers :
This system isn't about savers. This system is meant to keep you on the f*cking treadmill. It is engineered to destroy savings in order to force progress. Maybe it isn't even such a bad thing. Too many lazy, over-reactive, ignorant people with too much time on their hands probably won't bring out the best in humanity, at least with our current cultural disposition. Regardless, culling the herd is a law of nature. War in 2009. God requires the sacrifice. Let's hope the God of Knowledge can beat out that one from the 6th Century, but if I do remember correctly, some important mathematical books were washed out and re-used for Christian purposes. Better duck, because here comes the pendulum!
My pony just got her real estate license. We're heading West!
Deflation, shmeflation. When I see smaller guys on the WWF, I'll believe it.
ille_vir:
Some counter arguments to your assumptions :
Japan is not US, they reacted slower with less.
It may NOT be a one-time stimulus, it can continue indefinitely.
Failing tax revenues and rising debt services have Nothing to do with stimulus levels. 8T was promised, and that was 8T that wasn't there, did not stop them.
Don't see hyperinflation, just see inflation in consumables and deflation in housing. And a devaluation of the dollar albeit a gradual one.
The prudent savers can still get decent deals on long-term CDs and corporate bonds (provided one is very choosy here). Why do people whine so much? Deflation is GOOD for savers. Inflation is bad. What do we have right now? Oh yeah, big deflationary event of our lifetime? Take advantage of it.
"Japan is not US"
no, but we certainly are trying to ape the worst aspects of their policies to the letter. i strongly recommend the book "dogs and demons" once again, especially in light of the received wisdom in regards to our proposed renaissance of natl infrastructure spending.
The inflation has been slayed in its entirerity by the people who want to steal the wealth from savers under its cover.
There is no inflation with out wage growth.
There is no wage growth without employement growth.
There is no employement growth without need for hard labor.
The need for hard labor is eliminated to the greatest extent by technological evolution.
The technological evolution will be there as longs as there is a possibility of replacing hard labor requirement.
The availability of hard labor (population) is so far growing as good rate.
Now, repeat after me.
The fiat currency is dead.
The fiat currency is killed by the fox (CB(s)) who are supposed to be huarding the hen (fiat).
The fiat currency has life only when people believe in it. You take away the belief the fiat currency is instantly.
If you still feel that the fiat currency is alive then you wouldn't be talking that gov can inflate or fed can print or US will not default or deflation will npt happen here.
If anyone wants to save the world, then they must save the fiat currency.
No fiat currency; no world
No fiat currency; no world
No fiat currency; no world
It is not about how long you live; it about how happy you lived in the time you have.
It is not about how much wealth you have; it is about how genereous you are within your means.
It is not about you haave a good job; it is about how many people u helped to retain or find one.
This is depression of the nth order magnitude and 1929 is walk in the park. This is going to last for decades and decades; may for your entire life time.
People can always have a good life even under tough condition
Embrace the depression; you will have enough strength to face it.
To what extent a living person will certainly die, to that extent this depression which is here right now will also be alive and kicking for next couple of decades at least.
Rome fell due to inflation of the Mint, followed by price controls, shortages, and then the failure of the market economy. People left to the countryside to find food. Division of labor broke down. High taxes were the last attempt to finance its enormous military. People turned to feudalism for the next millennium. Enjoy the sequel.
"People turned to feudalism for the next millennium. "
and the black plague set the stage for the greatest flowering of human culture ever! even if that whole colonialism thing had some ugly aspects...
gotta find that silver lining.
i suppose marin co has marin city, much as SF has hunter's point... the exception that proves the rule?
bgates | 01.04.09 - 2:04 am | #
I thought that you were talking about West Marin. Bolinas is famous for its "wars" against outsiders. As to Marin City, I actually lived there in the seventies as a distinct minority.
Thx for the responses Anonymous,
What is the dollar going to devalue against, with other major currencies also trying to devalue? It seems to me currency devaluation is a relative event, requiring another currency for the dollar to devalue against. You're right, Japan is STILL trying stimulus packages after all these years, but the high level of debt/GDP has become a political issue there, and will become one here if we reach those levels (170% of GDP right now, I think). The thing is, neither fiscal nor monetary policy happen in a political vacuum. (I think Bernanke doesn't really grasp this, which is his big failing) Political realities will make successively larger stimulus packages difficult.
What is the dollar going to devalue against, with other major currencies also trying to devalue?
Commodities and PMs...
unfortunate choices of words (ongoing)
Alex cartoon - City news, finance satire - Telegraph
"The thing is, neither fiscal nor monetary policy happen in a political vacuum. (I think Bernanke doesn't really grasp this, which is his big failing) "
of course. fiat dollars are not economic units, they are political ones. ben's big failing was deciding to engage in any activities outside of academia, where his idiocy was safely contained.
as for bolinas, 900K median SFRs will do wonders for keeping outsiders out. I wonder if those prices will be as "sticky" as oil-slicked seabirds on the way down...
o, but we certainly are trying to ape the worst aspects of their policies to the letter
No arguments there, just saying that the humongous amounts thrown will result in inflation.
Am confident that means will be found to circumvent this blockage of money flow, even if the banks don't lend.
Perhaps the FED will open a consumer and investment division itself and directly stimulate velocity.
Are they going to take that money and expand capacity? Hire more people? Most likely not, they know it's a one-time stimulus.
Maybe they will take that money and start hoarding hard assets instead of treasuries? Those with assets are barely saved via the reflation and those without are pushed into a more extreme form of poverty? That would align with the first world becoming more third world, which is what you would expect in a system where the elites will take whatever measures necessary to preserve their wealth, whether those actions are fair or just.
We are all Third World now!
"That would align with the first world becoming more third world"
this has been painfully obvious for a while now, GINI index, preening and somewhat useless military, economy dependent on tourism and money laundering... but of all of the countries of latin america, the USA is probably the most interesting.
ille_vir :
Competitive devaluing and beggar thy neighbor will eventually stop when it is shown to be ineffective.
Successively larger stimulus packages will indeed be difficult BUT not impossible due to the nature of the system in place.
Still laws of supply and demand holds good for Commodities and PM.
without this oid wouldn't have fell from $145/b to $35/b in months.
People will loose their faith in Commodities and PM when their price swings from one extreame to another extream in qtrs timeframe.
Just answer one question, would you invest in oil if oil experiences the price swing to each extreame in each year?
bgates: and the black plague set the stage for the greatest flowering of human culture ever!
Exactly. Want prosperity? Kill off a decent portion of the population. The plague ended feudalism and nobles had to tend their own fields. Oh, what I would give to see Black and Scholes toiling in the soil for their own sustenance. Where do people think the American Dream came from? Yep, the dead sacrificed during WWII. War 2009. A sustainable system would monitor and manage resource consumption per-capita. Anything else leads to only one outcome: War.
Okay, so say that the dollar and other major currencies devalue against commodities and PMs. So everyone buys less gold and other stuff with the same money? But more house? Something about that doesn't jive to me, I think it's just that I have a hard time seeing gold used as a currency again, but that might just be me and my old paradigms of money. So perhaps you're right.
dr strangemoney(Unrated) writes:
Maybe they will take that money and start hoarding hard assets instead of treasuries? Those with assets are barely saved via the reflation and those without are pushed into a more extreme form of poverty? That would align with the first world becoming more third world, which is what you would expect in a system where the elites will take whatever measures necessary to preserve their wealth, whether those actions are fair or just.
Maybe, maybe not. It seems to me more likely that people will hoard cash over gold, because cash is more readily useful in the current paradigm. Even if they do hoard some hard assets, what do the people selling those hard assets to them do? My guess would be hoard the cash!
ille_vir: The thing is, neither fiscal nor monetary policy happen in a political vacuum.
I think political appropriation of fiscal money will be our direct path to a more third-world economic system. So much so that I've already got a horse in that race. I think looking at economic systems further down that path are instructive when making plans for the future. I hope that Obama's advisers are not so self-interested, but, knowing human nature, my plans are for the obvious.
also, incidentally, one of the most popular diaries on dailykos is devoted to why treasuries are overpriced:
Daily Kos: The next bubble to burst
remember, memes don't pop bubbles, people do
Stimulus programs are kind of like priming the pump. The more time a dollar changes hands, the more tax dollars are generated. I read once where a dollar changes hands approximately twelve times a day (hard to believe, I know). That means one dollar 'creates' another dollar every day, as far as the government is concerned, (at ~8% tax). My point? I can't remember -
The more time a dollar changes hands, the more tax dollars are generated.
Exactly. Hence velocity increases and inflation is the end result.
ille_vir: So everyone buys less gold and other stuff with the same money? But more house?
Yes, that has been what I have been struggling with in my hypothesis. But after spending time in the third world, I think it makes sense that everything becomes much more expensive, consumption drops much more, and a politically corrupted elite take control of a greater portion of the resources and access to financing. Holistically it makes sense that the system would rebalance in that way -- I think it makes sense to look at existing configurations of stability to understand how we might evolve. But I also think that the stress in the transition could easily lead to war.
Inflation, yes, unless dollars are withdrawn to control it -
I think the self-interest of US politicians lies in not destroying faith in their currency. Hyperinflation scenario is not in the interest of anyone, nor is a shift to a PM currency. That's not to say one shouldn't hedge their bets, btw. I've been looking to add to my miniscule gold holdings as my budget allows.
The more time a dollar changes hands, the more tax dollars are generated.
That was kind of my point, when the public stimulus money stops moving right after the gov't spends it, it is relatively powerless won't lead to inflation.
G'night folks, and thanks for the late-night company.
It seems to me more likely that people will hoard cash over gold, because cash is more readily useful in the current paradigm
People will hoard cash until it is evident that cash isn't doing the trick. Once people realize that cash is no longer a store of value, it will be divested out of.
So far the USD is still accepted as the ultimate currency to hold judging by the >60% of world reserves in it.
If the current financial system is to survive, a devaluation(inflation) of the dollar would be most beneficial to the US, much of course to the detriment of the rest.
Still i see inflation in the cards and not deflation except in housing assets which is evident.
Oh, and thank you for sharing your experiences and viewpoints, Anonymous and dr strangemoney.
I think the self-interest of US politicians lies in not destroying faith in their currency.
Compare the dollar index of the last few years and you will be surprised.
Devaluation is already being applied.
Inflation gets the gov out of debt.
There is no reason to believe the public money will stop moving if the promise to print and distribute indefinitely is implied as is happening currently, with the policies and rhetoric expressed.
Thanks for the discourse and have a good night.
dr strangemoney - war among whom, might I ask?
001: dr strangemoney - war among whom, might I ask?
Islam and somebody. I think the margins are cracking. Now that western civilization's magic wealth printing machine of modern finance has died it's ignoble mathematical death, other philosophies of living will gain more traction and many more followers.
Oh, and thank you for sharing your experiences and viewpoints, Anonymous and dr strangemoney.
Thank you both and goodnight. My outlooks are only probabilities and the more inputs the better.
Mt friend (and I mean that), don't sell western civilization so short. Not that other philosophies won't gain traction, but I doubt that they will be Islamic, especially of the fundamentalist variety. I have heard that Islam is growing, true. But so is Christianity, as well as atheism. Which one will dominate? I'll place my bet on a western variety.
Re: HBO Baltimore shows.
Charles Dutton's "The Corner" was superb. Better than most feature films and all reality TV by a long stretch.
RE-
Hambrecht (BASF) also said that the banks should have been more or less nationalized, since instead of the government money going to serve the bank's customers, the banks used it only for themselves, to the disadvantage of those customers. Hambrecht, here, of course is talking about industrial concerns - the German economy is still very much oriented to old fashioned industrial policies, having at least partially missed the boat on following the dynamic American economy into a post-industrial wonderland filled with financial engineering.
As for 'Western countries should close their markets to sales of Chinese trains because China's domestic market is closing to outside suppliers' - I can already hear a certain clacking keyboard remarking that trains aren't an export market worth getting involved in, as the inexorable future of a fulfilling human life is exurbia. At least in this case, the U.S. doesn't really have to worry all that much about a trade war - it is pretty much a market reliant on train imports anyways.
"... a certain clacking keyboard...", too funny, r_t_o, and I'm no Dawg apologist, but he only calls it as he sees it, and we can only hope that one day he'll jump on the 'progress' train, no matter how much it costs him.
It's not structural investment, but what about all the retail space given up to car dealerships... especially with the wipe out it car sales. It must be huge sqft even if it's not covered. I saw this mentioned on TBP:
What’s with All the Auto Dealers? | The Big Picture
from the WSJ:
The Trials of the Auto Dealer - WSJ.com
One of my dad's friends runs a dealership in Texas and I have to say that it's one of the most leveraged operations I've seen. He apparently doesn't own the inventory or land since he has loans out against them. To him it's all just a real estate play, which has paid off handsomely over the last couple of decades as the city expanded. He also makes a nice steady dividend from contracting out the dealer maintenance concession (since mechanics will pay for that kind of work).
He just sold to condo developers 2 years ago, and opened a new lot on the edge of town. Today? I don't know, but I expect that whoever he owes for the real estate and cars is soon going be getting it back "at a discount"...
C J-B, sounds like he had a good run, but as we all know, nothing lasts forever. Did he save anything?
One comment on the FED forcing money to circultate (and the banks to lend) leading eventually to inflation...
I read (perhaps here or on TBP) that with the toe in the door of the FED paying positive interest on reserves to re-capitalize the banks (and steal from the rest of us taxpayers), that the next step is to force them to lend by setting the interest rate negative. That way, if they aren't lending (against the reserves the are required to have) they're losing money.
There seem to be endless clever ways to print money by creating new low interest debt rather than just printing it, and even ways to force the monetary velocity of high powered money up. It seems like the rise in interest rates caused by such inflation would kill housing sales (along with the dollar) even as it saves those in houses.
The question is, "when does the treasury market crash?", not if.
At least in this case, the U.S. doesn't really have to worry all that much about a trade war - it is pretty much a market reliant on train imports anyways.
Uh, no. EMD and GE Transportation are major players in the diesel loco market, and export worldwide. The US intermittently imports transit products, but a lot of contracts required local assembly.
Your anti-American crap is getting to be almost as annoying as Rob's anti-urban rantings.
OhOhOne-
Hard to say in the new Tejas. I grew up there, but the boom has changed people's judgment. I'd say he's probably got a house with some land on it and put some kids through school. No new trophy wife as would be required here in Cali. Lord knows what he has in the markets. You can't take the house away in Texas even if he has personal liability. I'd say he'll probably lose some friends in the local banking community, but then he's at retirement age anyway.
Did anyone catch the sales flyer someone posted a few days ago for a (iirc) smallish industrial building. 90% SBA financing. Was this broker on drugs or can you still get a 90% sba loan??? And if so...
Do the SBA lenders still tell you that you need to occupy 51% but then whisper "but no one ever checks"?
WHY????
as for bolinas, 900K median SFRs will do wonders for keeping outsiders out
bgates | 01.04.09 - 2:46 am | #
Just poor ones. Those prices reflect the fact that Bolinas finally lost the outsiders battle - when they started getting the likes of Susie Buell as residents, things changed dramatically.
C J-B, sounds like he did the best he could. All you can ask of any man, especially in Texas.